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As Filed with the Securities and Exchange Commission on November 12, 1999
Registration Statement No. 33-37802
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 10
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CERES FUND, L.P.
(Exact name of registrant as specified in its charter)
TENNESSEE
(State of Incorporation)
6799
(Primary Standard Industrial Classification Code Number)
62-1444129
(IRS Employer Identification Number)
889 Ridge Lake Blvd., Memphis, Tennessee 38120
(901) 766-4590
(Address, including zip code, and telephone number, including
area code, of registrant's principal offices)
Frank L. Watson, Jr.
Randell Commodity Corporation
889 Ridge Lake Blvd.
Memphis, Tennessee 38120
(901) 766-4590
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
FRANK L. WATSON, JR.
MARTY MORGAN
Baker, Donelson, Bearman & Caldwell
2000 First Tennessee Bank Bldg.
Memphis, Tennessee 38103
(901) 526-2000
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September 30, 1999
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If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box.
[X]
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CERES FUND, L.P.
100,000
UNITS OF LIMITED PARTNERSHIP INTEREST
This prospectus of Ceres Fund, L.P. amends and restates our previous prospectus
dated May 30, 1998.
THE OFFERING
The Partnership engages in speculative trading of commodity futures contracts,
forward contracts, commodity options and other interests in commodities,
including futures contracts and options on financial instruments, physical
commodities and stock indices on organized exchanges in the U.S. and abroad.
You may purchase units of interest in the Partnership at their net asset value,
plus a selling commission equal to four percent of the amount purchased. As of
September 30, 1999, the Partnership's net asset value per unit was $154.3598.
The minimum investment is $2,000.00, plus a four percent selling commission. The
selling agents will use their best efforts to sell the units offered.
THE RISKS
BEFORE YOU DECIDE WHETHER TO INVEST, READ THIS ENTIRE PROSPECTUS CAREFULLY AND
CONSIDER "THE RISKS YOU FACE" BEGINNING ON PAGE 4.
- - You could lose all or substantially all of your investment in the
Partnership.
- - The Partnership is speculative and leveraged. Performance can be
volatile.
- - The use of a single trading advisor applying a limited number of
generally similar trading programs could mean lack of diversification
and, consequently, higher risk.
- - Trading profits and interest income must be high enough to offset
substantial expenses.
- - There is no secondary market for the units. Redemptions are limited and
may result in redemption charges.
- - The Partnership trades to a substantial degree on non-U.S. markets that
are not subject to the same degree of regulation as U.S. markets.
- - We encourage you to discuss a possible investment with your individual
financial, legal and tax advisors.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF
ADDITIONAL INFORMATION. THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL, NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
RANDELL COMMODITY CORPORATION
MANAGING GENERAL PARTNER
September 30, 1999
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PART ONE
DISCLOSURE DOCUMENT
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL ON PAGE 13 AND A
STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER
THE AMOUNT OF YOUR INITIAL INVESTMENT, ON PAGE 18.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING THE DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, BEGINNING ON PAGE 4.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS THAT OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL
AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
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TABLE OF CONTENTS
PART ONE
DISCLOSURE DOCUMENT
<TABLE>
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Page
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RISK DISCLOSURE STATEMENT.............................................................................................ii
SUMMARY OF THE PROSPECTUS..............................................................................................1
THE RISKS YOU FACE.....................................................................................................4
FACTORS THAT MAY AFFECT YOUR DECISION TO INVEST........................................................................9
CONFLICTS OF INTEREST..................................................................................................9
DESCRIPTION OF CHARGES TO THE PARTNERSHIP AND PARTNERS................................................................12
BUSINESS OF THE PARTNERSHIP...........................................................................................17
USE OF PROCEEDS.......................................................................................................17
CAPITALIZATION........................................................................................................18
DISTRIBUTIONS TO PARTNERS.............................................................................................18
GENERAL PARTNERS......................................................................................................18
PAST PERFORMANCE OF THE PARTNERSHIP...................................................................................20
CAPSULE PERFORMANCE OF CERES FUND, L.P................................................................................21
FUTURES COMMISSION MERCHANT...........................................................................................22
TRADING APPROACH......................................................................................................23
TRADING POLICIES......................................................................................................25
ADJUSTED ASSET VALUE AND NET ASSET VALUE..............................................................................26
REDEMPTIONS...........................................................................................................28
ALLOCATION OF PROFITS AND LOSSES......................................................................................29
CERTAIN FEDERAL INCOME TAX ASPECTS....................................................................................31
PLAN OF DISTRIBUTION..................................................................................................36
LEGAL MATTERS.........................................................................................................36
EXPERTS .............................................................................................................37
ADDITIONAL INFORMATION................................................................................................37
Financial Statements of the Partnership as of December 31, 1998 and 1997, and results
of its operations and its cash flows for each of the years in the three year period ended December 31, 1998..........F-1
Unaudited Financial Statements of the Partnership as of September 30, 1999..........................................F-20
Balance Sheets of Randell Commodity Corporation as of December 31, 1998 and 1997....................................F-24
Balance Sheet of RanDelta Capital Partners, L.P. as of December 31, 1998 and 1997...................................F-32
<CAPTION>
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
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COMMODITY FUTURES MARKETS..............................................................................................1
THE PARTNERSHIP AGREEMENT..............................................................................................5
PURCHASES BY EMPLOYEE BENEFIT PLANS....................................................................................9
GLOSSARY OF CERTAIN TERMS AND DEFINITIONS.............................................................................11
</TABLE>
Exhibit A - Agreement of Limited Partnership
Exhibit B - Form of Request for Redemption
Exhibit C - Subscription Documents (included under separate cover)
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SUMMARY OF THE PROSPECTUS
This summary highlights certain important information contained in this
prospectus. It is not complete and does not contain all of the information that
you should consider before investing in the Partnership. To understand this
offering fully, you should read the entire prospectus carefully, including "The
Risks You Face" and the financial statements and related notes.
GENERAL
Ceres Fund, L.P. is a Tennessee limited partnership that engages in
speculative trading in a wide range of U.S. and international futures and
forward markets. Our portfolio consists of both agricultural and financial
futures, with an emphasis on agricultural commodities. Randell Commodity
Corporation, our managing general partner and trading advisor, seeks to achieve
substantial capital appreciation by using a combination of fundamental and
technical approaches to identify major movements in a particular commodity or
group of commodities. Registered commodity representatives who specialize in a
single commodity or commodity complex will aid Randell in making these
identifications. Randell will also use its proprietary money management and
trading systems in managing risk and selecting trades.
Through an investment in the Partnership, you will have the opportunity
to participate in markets not typically represented in an individual investor's
portfolio and the potential to profit from rising as well as falling prices. The
success of our trading is not dependent upon favorable economic conditions,
national or international. Indeed, periods of economic uncertainty can augment
the profit potential of the Partnership by increasing the likelihood of
significant movements in commodity prices, the exchange rates among various
countries, world stock prices and interest rates.
IS THE PARTNERSHIP A SUITABLE INVESTMENT FOR YOU?
An investment in the Partnership is speculative and involves a high
degree of risk. Ceres Fund is not a complete investment program. Rather, it
offers a diversification opportunity for an investor's entire investment
portfolio. An investment in the Partnership should make up only a limited
portion of an investor's portfolio. You should invest in the Partnership only if
you have no need for liquidity with respect to this investment and if you have
sufficient net worth to sustain a loss of your entire investment.
You must, at a minimum, have:
1. a net worth (exclusive of home, furnishings and automobiles)
of at least $150,000, OR
2. (a) a net worth of at least $45,000 (exclusive of home,
furnishings and automobiles) AND
(b) actual gross income for 1998 and projected gross income
for each of 1999 and 2000 of at least $45,000.
A number of jurisdictions in which the Partnership will offer units
impose higher minimum suitability standards on prospective investors. These
suitability standards are, in each case, regulatory minimums only, and merely
because you meet such standards does not mean that an investment in the
Partnership is suitable for you.
THE UNITS
We have registered a maximum of 100,000 units of limited partnership
interest, which will be continuously offered for sale to the public. As of
September 30, 1999, we had 32,121.1300 units outstanding. Under certain
conditions, Randell Commodity Corporation may increase the number of units to
500,000 and make additional public or private offerings of units.
We are offering and selling the units on a best efforts basis through
selling agents who are members of the National Association of Securities
Dealers. We will continue to sell units valued as of the beginning of each month
at the then current average net asset value per unit, plus a selling commission
of 4% of the subscription amount, until the maximum number of units offered have
been sold. Fractional units will be issued.
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USE OF PROCEEDS
The Partnership will deposit the net proceeds of this offering in the
partnership's commodity trading account with Refco, to be used for trading in
futures contracts and other futures interests.
THE PARTNERSHIP
The Partnership was organized as a limited partnership under the laws
of the State of Tennessee on September 19, 1990. The Partnership is located at
889 Ridge Lake Blvd., Memphis, Tennessee 38120, telephone 901/766-4590. The
Partnership continuously offers units of partnership interest. Upon investing in
the Partnership, you will become one of the Partnership's limited partners.
KEY PARTICIPANTS IN THE PARTNERSHIP
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Participant Role(s) Played
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Randell Commodity Corporation, Managing General Partner
a Tennessee corporation Commodity Pool Operator
Trading Advisor
RanDelta Capital Partners, L.P., Financial General Partner
a Tennessee limited partnership
Refco, Inc. Futures Commission Merchant
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Randell Commodity Corporation has been a commodity pool operator since
1983 and a commodity trading advisor since 1984. Frank L. Watson, Jr., Randell's
chairman, will make all trading decisions for the Partnership.
Refco, Inc. will provide various clearing and execution services to the
Partnership at the direction of Randell Commodity Corporation. Refco is a
registered futures commission merchant and one of the largest commodity brokers
in the world.
BREAK EVEN POINT
In order for an investor to "break even" on an initial investment of
$2,000 in the first year of trading, the Partnership must earn $704 per unit, or
35.2%, provided that no redemption charge applies.
DISTRIBUTIONS
Randell Commodity Corporation will have sole discretion to decide
whether the Partnership will distribute its profits, if any. Randell intends to
make distributions only if the Partnership realizes substantial profits and only
if the average net asset value per unit is at least $100 after the distribution.
Randell does intend, however, to make annual cash distributions to each of its
investors in amounts that will approximate that investor's tax liability for
Partnership income for the fiscal year immediately preceding the distribution.
Each investor must include his share of profits in income for tax purposes
regardless of whether any distributions are made.
REDEMPTION OF UNITS
You may not redeem your units during the first six months after you
purchase them. After the end of the sixth month, you may redeem your units at
their net asset value per unit as of the end of any calendar quarter upon 10
days' prior written notice to Randell Commodity Corporation. You must pay a
redemption fee if you choose to redeem your units before the end of the twelfth
month after you purchase them.
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STOP LOSS PROVISION
If the average net asset value per unit falls to 50% or less of the
highest average net asset value at which any investor has purchased units
(adjusted for all distributions), Randell Commodity Corporation will liquidate
all open positions as expeditiously as possible, suspend trading and set a
special redemption date. Investors will then have the opportunity to withdraw or
remain in the Partnership. The Partnership Agreement contains further conditions
applicable to special redemptions.
RISKS
Futures, forwards and options trading is speculative, volatile and
highly leveraged. An investment in the Partnership involves substantial risks,
including the risk of loss of your entire investment (including any profits,
whether or not distributed). Please read carefully "The Risks You Face"
beginning on page 4.
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THE RISKS YOU FACE
The Partnership will engage in the high risk business of commodity
futures trading. You should consider the risk factors described in the Risk
Disclosure Statement on page iii and the following risks before deciding to
invest in the Partnership:
INDUSTRY RISKS
COMMODITY FUTURES TRADING IS VOLATILE. A principal risk in commodity
futures trading is the traditional rapid fluctuation in the market prices of
commodities. Price movements of commodity futures may occur because of:
- changing supply and demand relationships;
- weather;
- agricultural, trade, fiscal, monetary and exchange control
programs and policies of governments;
- national and international political and economic events and
policies; and
- changes in interest rates.
Any of these factors, alone or in combination with one another, may cause a high
degree of price variability. Occasional rapid or substantial price changes may
cause you to lose all or most of your investment in the Partnership.
The varying rates of return earned by the Partnership over the past
five years highlight the volatility associated with commodities futures trading.
Further, past performance is not necessarily indicative of future performance.
In May 1994, Randell Commodity Corporation became the sole trading advisor for
the Partnership. Prior to May 1994, Randell Commodity Corporation and Delta
International, Inc. acted as co-trading advisors to the Partnership. You should
not assume that trading decisions made by Randell Commodity Corporation in the
future will avoid substantial losses, be more profitable or result in
performance for the Partnership comparable to its past performance.
In a single advisor fund such as the Partnership, one trading advisor
makes all of the trading decisions. You should understand that many commodity
pools are structured as multi-advisor funds in order to attempt to control risk
and reduce volatility by combining advisors whose historical performance records
have exhibited a significant degree of non-correlation with each other.
Non-correlation means that there is not a statistically valid relationship,
either positive or negative, among the past performances of the advisors of a
particular commodity pool. As a single advisor fund, the Partnership may have a
greater profit potential than a multi-advisor fund, but it may also have
increased performance volatility and a higher risk of loss.
THE PARTNERSHIP IS HIGHLY LEVERAGED. In order to enter into a futures
or forward contract position, the Partnership must deposit margin funds with a
futures broker equal to only a small percentage of the total value of the
contract. The amount of margin funds necessary on a particular trade typically
ranges from about 4% to 10% of the total value of the contract. This produces an
extremely high degree of leverage. As a result, a relatively small price
movement in the commodities futures may result in immediate and substantial
losses to the investor, and any purchase or sale of commodity futures contracts
may result in losses in excess of the amount of margin deposits required. The
Partnership may lose more than its initial margin deposit on a trade, but you
will not be subject to losses in excess of your investment in the Partnership
plus profits, if any (including distributions and, in certain circumstances,
amounts received upon redemption of units), together with interest thereon. The
margin to equity ratio of the Partnership is approximately 30%, which is greater
than most commodity pools. The greater the Partnership's margin to equity ratio,
the greater the volatility in the Partnership's net asset value and,
consequently, the greater your potential losses may be.
ILLIQUIDITY OF COMMODITY FUTURES TRADING. Commodity exchanges limit
fluctuations in commodity futures contract prices during a single day by
regulations referred to as "daily price fluctuation limits" or "daily limits."
Daily limits prevent any trades from being made at prices outside of the daily
limit during a single trading day. Once the price of a futures contract for a
particular commodity has increased or decreased by an amount equal to the daily
limit, the Partnership will be unable to either take or liquidate positions in
the commodity unless traders are willing to effect trades at or within the daily
limit. Commodity futures prices have occasionally moved to the daily limit for
several consecutive days with little or no trading. Similar occurrences could
prevent the Partnership from promptly liquidating unfavorable positions and
subject the Partnership to substantial losses.
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FORWARD CONTRACTS ARE NOT REGULATED. The Commodity Futures Trading
Commission, or CFTC, does not regulate trading in forward contracts. Such
contracts are not traded on or guaranteed by an exchange or its clearing house.
Rather, banks and dealers act as principals in the forward contract markets.
Consequently, there are no requirements with respect to record keeping,
financial responsibility or segregation of customer funds and positions. If we
trade in forward contracts, we will be subject to the failure, inability or
refusal to perform a forward contract by a counter-party to that forward
contract. The default of a party with which we had entered into a forward
contract would deprive us of any profit potential or force us to cover our
commitments for resale, if any, at the market price then current.
OPTIONS. Each option on a commodity futures contract or physical
commodity is a right, purchased for a certain price, to either buy or sell a
commodity futures contract or physical commodity during a certain period of time
for a fixed price. Although successful commodity options trading requires many
of the same skills as does successful commodity futures trading, the risks
involved are somewhat different. For example, if we buy an option (either to
sell or purchase a futures contract or commodity), we will pay a "premium"
representing the market value of the option. Unless the price of the futures
contract or commodity underlying the option changes and it becomes profitable to
exercise or offset the option before it expires, we may lose the entire amount
of such premium. Conversely, if we sell an option either to sell or purchase a
futures contract or commodity, we will be credited with the premium but will
have to deposit margin due to our contingent liability to take or deliver the
futures contract or commodity underlying the option in the event the option is
exercised. Sellers of options are subject to the entire loss which occurs in the
underlying futures position or underlying commodity (less any premium received).
RISKS RELATING TO THE PARTNERSHIP AND THE OFFERING OF UNITS
GENERAL PARTNERS' FINANCIAL CONDITION. The General Partners' net worth
does not significantly affect the Partnership's ability to meet its obligations
(because such obligations will typically be substantially larger than such net
worth). The General Partners' net worth, however, is a significant consideration
because it affects their ability to continue to act as General Partners. The
General Partners and their principals will devote only so much of their time to
the affairs of the Partnership as they in their sole discretion deem necessary.
In addition, the General Partners intend to become the General Partners in other
commodity pool limited partnerships. If the General Partners were unable to
continue their operations, it would be necessary for the Partnership to find a
substitute general partner and/or trading advisor in order to continue the
Partnership's operations.
SUBSTANTIAL CHARGES TO THE PARTNERSHIP. The Partnership is obligated to
allocate and pay to the General Partners:
- a monthly management allocation equal to 1/3 of 1% (4%
annually) of the adjusted asset value of the Partnership
attributable to units held by investors;
- a quarterly incentive allocation equal to 15% of net new
appreciation attributable to units held by investors;
- brokerage commissions; and
- other charges (including, legal, accounting, auditing,
postage, communication expenses and other extraordinary
expenses), estimated to amount to 1.5% of the Partnership's
net assets per year.
The Partnership must make these payments regardless of whether it realizes any
profits. In the absence of substantial trading profits, these payments may
quickly deplete Partnership assets.
BROKERAGE COMMISSIONS. Employment of the trading systems described
under "Trading Approaches" may result in active trading during periods of high
volatility and erratic markets. Brokerage commissions may cause depletion of the
Partnership's net asset value. Depending on the volume of trading and market
conditions, brokerage commissions could be as much as average net asset value.
For example, if the Partnership were averaging brokerage commissions equal to
50% of net asset value and suffered a 50% loss in a given period of time, the
brokerage commissions could, accordingly, equal 100% of such net asset value.
POSSIBLE CLAIM AGAINST INVESTORS. If the assets of the Partnership and
the General Partners are insufficient to pay the obligations of the Partnership,
the Partnership may have a claim against you as an investor for the repayment of
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any cash distributions you received (including distributions made on redemption
of units), with interest, but only to the extent that such obligations arose
before the distributions.
INVESTORS WILL NOT PARTICIPATE IN MANAGEMENT. As an investor, you will
not be entitled to participate in the management of the Partnership or the
conduct of its business.
LIMITED ABILITY TO LIQUIDATE INVESTMENT IN UNITS. Investors may not
transfer their units except in accordance with the Partnership Agreement. No
market exists for the sale of units, and none is likely to develop. In addition,
a transferee of a unit can only become a substituted limited partner with the
consent of Randell Commodity Corporation.
While the units have redemption rights, there are restrictions on those
rights, and an investor seeking to redeem his units may have to pay a fee in
connection with the redemption. An investor must give Randall Commodity
Corporation ten days' written notice of his desire to redeem his units, and
redemptions can take place only as of the last day of a calendar quarter. Other
restrictions may apply as well.
POSSIBLE EFFECT OF REDEMPTIONS ON UNIT VALUES. Because a request for
redemption, to be effective, must be submitted at least 10 days prior to the end
of the calendar quarter for which redemption is sought, the net asset value at
which the unit is redeemed could decrease significantly, as well as increase,
between the date on which the request is submitted and the date redemption
occurs. If the Partnership received a large number of redemption requests at one
time, it might have to liquidate positions to satisfy the requests. Such a
forced liquidation could adversely affect the Partnership and consequently your
investment.
CONFLICTS OF INTEREST. Conflicts of interest exist in the structure and
operation of the Partnership's business. For example, Randell Commodity
Corporation acts as both a general partner and as sole trading advisor of the
Partnership. It is unlikely, therefore, that the Partnership would terminate
Randell's advisory contract. In addition, no fully independent third party is
connected with this offering or the conduct of the business of the Partnership
who or which might be in a position to affect the Partnership's conduct.
Furthermore, Refco, Inc. is acting as the futures commission merchant of the
Partnership, while an affiliate of Refco is the sole limited partner in RanDelta
Partners, L.P., the Partnership's financial general partner. This affiliate of
Refco has also provided the assets necessary to enable RanDelta to act as
financial general partner. Selling agents may also be reluctant to recommend
redemption of an investor's units since they receive a portion of the brokerage
commissions paid by the Partnership to the futures commission merchant if their
clients do not redeem units in the Partnership.
THE PARTNERSHIP IS NOT A REGULATED INVESTMENT COMPANY. Although the
Partnership and Randell Commodity Corporation are subject to regulation by the
CFTC, the Partnership is not an investment company subject to the Investment
Company Act of 1940. Accordingly, investors do not have the protections afforded
by that act which, for example, require investment companies to have a majority
of disinterested directors and which regulate the relationship between the
advisor and the investment company. A determination that the Partnership be
required to register as an investment company under the Investment Company Act
of 1940 could have serious adverse consequences for the Partnership, Randell
Commodity Corporation and the investors, including termination of the
Partnership.
YEAR 2000 ISSUES. The Year 2000 issue arises from the fact that many
existing computer programs use only two digits to identify a year on the
computer's date field. These programs were designed without considering the
impact of the upcoming change in the century. If not corrected, computer
applications could fail or create inaccurate results by or at the Year 2000.
Failure to correct the Year 2000 problem could disrupt the operations of the
Partnership and Randell Commodity Corporation, as well a the national and
international commodities futures exchanges.
The Partnership relies on the General Partners to provide the
Partnership with certain calculations and reports, so if the Year 2000 issue is
material to the General Partners, then it may impact the Partnership. However,
the Partnership believes that the Year 2000 problem will not materially affect
the General Partners. The General Partners generally use "off-the-shelf"
administration software, and the vendors of this software have advised the
General Partners that it is Year 2000 compliant. In addition, the Partnership
utilizes computer systems and applications maintained by its commodity broker
for trading activities and record keeping. The operators of these systems have
advised the General Partners that conversion and implementation activities for
mission critical systems are in process of
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being implemented and tested. Neither the software replacement nor the
compliance review is expected to be material or to yield noncompliance issues
that are material.
RISKS RELATING TO THE TRADING ADVISOR AND THE TRADING APPROACH
TRADING DECISIONS BASED ON FUNDAMENTAL AND TECHNICAL ANALYSIS. Randell
Commodity Corporation will make trading decisions on behalf of the Partnership
primarily on the basis of "fundamental" market analysis, with attention given to
technical analysis and strategies as well. Fundamental market analysis examines
external factors such as:
- government policies,
- national and international political and economic events, and
- changing crop prospects and similar factors.
Any of these factors may affect the supply and demand for a particular
commodity. Randell studies these factors to help it anticipate future prices.
Technical analysis is based on the theory that a study of the markets
themselves will provide sufficient information for the anticipation of future
prices. Technical analysis involves the study of:
- price levels and movements,
- volume level, and
- open-interest figures.
The study of these items using charts, computer assistance and other statistical
methods helps trading advisors to distinguish market patterns and trends based
primarily upon price behavior within the market itself. Technical analysis is
helpful in determining the timing of position taking and the appropriate moment
to enter or exit a particular market. It may, however, be unable to help trading
advisors respond to fundamental changes until after their impact has ceased to
influence the market. While trading advisors generally utilize computer programs
in conducting technical analysis, the use of computer programs in developing,
operating or assisting a trading system does not assure the success of the
trading method. Randell Commodity Corporation will utilize its own and others'
computer programs in its technical analysis as well as other technical services
such as charts and index calculations. Randell will, however, exercise a
significant degree of discretion over our trading strategies.
The profitability of diversified technical and fundamental trading
systems depends upon major price moves or trends in some commodities. In the
past, there have been periods without major price moves or trends, and
presumably such periods will continue to occur. The best trading systems will
not be profitable if there are no major price moves or trends of the kind the
systems seek to identify. We can give you no assurance that Randell will be
successful in executing our trading strategy.
POSSIBLE EFFECTS OF TREND-FOLLOWING SYSTEMS. It is estimated that over
half of all managed futures trading advisors rely primarily on trend-following
systems. If many traders follow very similar systems, bunching of buy and sell
orders can occur. It may become more difficult for us to implement our trading
strategy if these other trading advisors using technical systems are, at the
same time, also attempting to initiate or liquidate futures or forward positions
or otherwise alter trading patterns.
SPECULATIVE POSITION LIMITS MAY ALTER THE PARTNERSHIP'S TRADING
DECISIONS. The CFTC and commodity exchanges have established limits on the
maximum net long or net short positions which any person may hold or control in
particular commodities, and some commodity exchanges have established limits on
the maximum number of contracts which any person may trade on a particular
trading day. In addition, the CFTC requires contract markets to set speculation
position limits on all futures contracts. All accounts managed by our General
Partners, including the Partnership's account, are combined for position and
trading limit purposes. If positions in those accounts were to approach the
level of the particular speculative position limit, such limits could cause a
modification of Randell's trading decisions or force liquidation of some futures
positions.
7
<PAGE> 13
RANDELL COMMODITY CORPORATION. Randell Commodity Corporation, acting as
the trading advisor, will make the trading decisions for the Partnership. If
Randell were unable to continue its operations or were removed as a general
partner of the Partnership, it would be necessary for us to find a substitute
trading advisor in order to continue our operations.
TRADING ON FOREIGN EXCHANGES AND CURRENCY EXCHANGE RATE FLUCTUATIONS.
Randell Commodity Corporation may trade on foreign exchanges and other markets
located outside of the U.S. on our behalf. There is no limit to the percentage
of our assets which may be committed to trading on foreign markets. Foreign
trading involves risks, including exchange-rate exposure, possible governmental
intervention and lack of regulation, which U.S. trading does not. The rights of
clients in the event of the insolvency or bankruptcy of a non-U.S. market or
broker are also likely to be more limited than in the case of a U.S. market or
broker.
Furthermore, we will determine net asset value per unit in United
States dollars. In making trades on foreign markets, therefore, we will be
subject to the risk of fluctuation in the exchange rate between the local
currency and dollars and to the possibility of exchange controls. Fluctuations
in exchange rates could eliminate any profits which we might realize in such
trading. We could even incur losses as a result of any such changes.
NEW FUTURES AND OPTIONS CONTRACTS. The Partnership may trade only those
futures and options on futures contracts designated or approved for trading by
the CFTC. Periodically, the CFTC may approve and designate additional futures
and options contracts. If Randell Commodity Corporation determines that it may
be advantageous to trade in such new futures and options contracts, it may do
so. The markets in new futures and options contracts historically have been both
illiquid and highly volatile for some period of time after trading begins. This
presents both significant profit potential and a corresponding high risk
potential for any such contracts that the Partnership trades.
TAX RISKS
POSSIBILITY OF TAXATION AS A CORPORATION. The tax consequences of an
investment in the Partnership are dependent upon the Partnership being
characterized as a partnership for federal income tax purposes and not as an
association taxable as a corporation. The Partnership has not obtained and does
not plan to seek a ruling from the Internal Revenue Service as to its
classification for tax purposes, or with respect to any of the tax consequences
of participating in the partnership. If the Service determines that the
Partnership is an association taxable as a "corporation," there would be severe
adverse tax consequences to the investors.
INVESTORS ARE TAXED BASED ON THEIR SHARE OF PROFITS. Investors are
taxed each year on their share of the Partnership's profits, if any, regardless
of whether they redeem any units or receive any cash distributions from the
Partnership. The Partnership is not required to distribute profits.
DEDUCTIBILITY OF MANAGEMENT AND INCENTIVE ALLOCATIONS AND BROKERAGE
FEES. The General Partners do not intend to treat the management and incentive
allocations payable to the General Partners as "investment advisory fees." Upon
audit, however, the Internal Revenue Service may require such treatment, which
would likely increase an investor's tax liability. In addition, the Internal
Revenue Service may compel the Partnership to treat a portion of the brokerage
fees it pays to Refco as non-deductible syndication costs. Again, such treatment
would probably increase an investor's tax liability.
POSSIBILITY OF TAX AUDIT. The Internal Revenue Service may audit the
Partnership's tax returns, possibly causing adjustments to the returns. If an
audit results in an adjustment, investors may have to file amended returns
(which may themselves also be audited) and to pay additional taxes plus interest
and penalties.
THE FOREGOING LIST OF RISK FACTORS DOES NOT PURPORT TO BE A COMPLETE EXPLANATION
OF THE RISKS INVOLVED IN THIS OFFERING. PROSPECTIVE INVESTORS SHOULD READ THE
ENTIRE PROSPECTUS BEFORE DETERMINING TO PURCHASE UNITS AND SHOULD SEEK ADVICE
FROM QUALIFIED INDEPENDENT COUNSEL.
8
<PAGE> 14
FACTORS THAT MAY AFFECT YOUR DECISION TO INVEST
As an investor in the Partnership, you will enjoy advantages which
would be unavailable to you if you were to engage directly in commodity
transactions. Among these are the following:
LIMITED LIABILITY. Unlike individual investors engaging in speculative
commodity trading for their own account, investors in the Partnership cannot
lose more than the amount of their investment (plus profits, distributions and
interest) and will not personally be subject to margin calls.
INVESTMENT DIVERSIFICATION. An investor who is not prepared to spend
substantial time trading commodity futures contracts may, nevertheless,
participate in these markets through the Partnership, thereby obtaining
diversification in his investment portfolio. The profit potential of the
Partnership does not depend upon favorable general economic conditions, and it
is as likely to be profitable during periods of declining stock, bond and real
estate markets as at any other time. Conversely, it may be unprofitable or
profitable during periods of generally favorable economic conditions.
TRADING MANAGEMENT. Trading decisions will be made for the Partnership
by Randell Commodity Corporation. Randell is a commodity trading advisor
registered with the CFTC and the National Futures Association, or NFA. Randell
will manage the Partnership's investments as described in this prospectus.
INTEREST EARNED. The Partnership's assets will earn interest from Refco
on 100% of the average daily equity maintained in cash in the Partnership's
trading account at a rate equal to 80% of the average yield on thirteen week
U.S. Treasury Bills issued during each month. An individual trader generally
would not receive any interest on the funds in his commodity account unless he
committed substantially more than the minimum investment in the Partnership.
INDEPENDENCE OF TRADING ADVISOR FROM BROKER. Randell Commodity
Corporation will receive the management and incentive allocations from the
Partnership and will not participate in brokerage commissions on the Partnership
account. Refco, as the Partnership's futures commission merchant, charges
commissions but has no authority to make trading decisions and executes trades
only at the direction of Randell Commodity Corporation. Refco will not
participate in management or incentive allocations.
CONFLICTS OF INTEREST
Prospective investors should consider the conflicts of interest that
may be inherent in the following relationships:
ACCOUNTS OF AFFILIATES OF REFCO. The officers, directors, employees and
associated persons of Refco trade in commodity futures contracts for their own
accounts. You will not be able to inspect the results of any such trading. In
addition, Refco is a registered futures commission merchant and executes
transactions in commodity futures contracts for its customers. Thus, it is
possible that Refco could execute transactions for the Partnership in which the
other parties to the transactions are its officers, directors, employees or
customers. Such persons might also compete with the Partnership in making
purchases or sales of contracts without knowing that the Partnership is also
bidding on such contracts.
THE SELLING AGENTS. Pursuant to the Selling Agreement among the
Partnership, the General Partners and each of the selling agents, the
Partnership will pay commissions for the sale of units to those selling agents
who are registered or exempt from registration as futures commission merchants
or introducing brokers under the Commodity Exchange Act, or CEA. Independent
introducing brokers may introduce investors to the Partnership. Selling agents
who are appropriately registered or exempt from registration as futures
commission merchants, introducing brokers or associated persons will receive
continuing ("trail") commissions from Refco for continuing services related to
the purchase of units so long as those units remain issued and outstanding.
Selling agents may have a conflict of interest in advising investors as to
whether they should redeem units because of the agents' desire to continue
receiving trail commissions.
9
<PAGE> 15
OTHER ACTIVITIES AND ACCOUNTS OF THE GENERAL PARTNERS AND THEIR
AFFILIATES. Randell Commodity Corporation trades, and its officers, directors,
employees and affiliates trade, in commodity futures contracts for their own
accounts and for the accounts of other customers. Investors in the Partnership
will not be able to inspect the records of such trading. The performance history
of Randell Commodity Corporation and its parent, Randell Corporation, however,
will be available through filings made with the CFTC. All of the positions held
by all accounts managed by Randell Commodity Corporation will be aggregated with
positions held by the Partnership for purposes of determining compliance with
position limits. As a result, the Partnership might not be able to enter into or
maintain certain positions if such positions, when added to the positions held
by such other accounts, would exceed applicable limits. If Randell Commodity
Corporation must revise its trading orders as a result of the application of
speculative position limits, it is required to modify such orders in a manner
which will not substantially disproportionately affect the Partnership as
compared with Randell Commodity Corporation's other accounts. In addition,
Randell Commodity Corporation represents that it will not knowingly or
deliberately use trading strategies for the Partnership that are inferior to
those used for any other client or account nor to favor any other account over
the Partnership in any way. Randell Commodity Corporation may, however, utilize
different strategies or trading methods for its different accounts due to their
size, type or other factors.
MANAGEMENT OF OTHER POOLS AND ACCOUNTS. The General Partners and Refco
may establish, sponsor, or be affiliated with other commodity pools that may
engage in the same or similar business as the Partnership. Randell Commodity
Corporation presently acts as the general partner of one other limited
partnership which is a commodity pool.
Although its fiduciary responsibility prohibits Randell Commodity
Corporation from knowingly favoring any account it manages over any other, the
performance of the Partnership could be materially different from other accounts
of Randell Commodity Corporation because of size, diversification, or special
emphasis of some accounts in certain specific commodities. Furthermore, the
performance of the Partnership could be adversely affected by the manner in
which Randell Commodity Corporation enters particular orders for all such
trading accounts since orders for the same commodity are filled in the order
they are received at the particular trading floor. To the extent permitted by
applicable regulations, Randell Commodity Corporation may use "block orders" in
effecting trades, with a view to diminishing the effect of any such potential
conflict.
TRADING SYSTEMS OF RANDELL COMMODITY CORPORATION AND REFCO. Neither the
Partnership nor any investor will acquire any interest in any trading systems or
information developed by any third party, the General Partners or Refco, or any
officer, director, employee, shareholder or associated person thereof solely by
virtue of his status as an investor in the Partnership. Similarly, neither the
Partnership nor any investor will acquire any interest in the General Partners,
Refco, or any other corporation or partnership in which any officer, director,
employee, shareholder or affiliated person of any of them has a beneficial
interest solely by virtue of its status as the Partnership or his status as an
investor of the Partnership.
BROKERAGE CHARGES. Randell Commodity Corporation believes that the
arrangements between the Partnership and Refco are consistent with the
arrangements similar commodity pools have entered into with other futures
commission merchants and therefore are fair to the Partnership. Randell
Commodity Corporation will review, at least annually, the brokerage commission
rates charged comparable commodity pools by major futures commission merchants
to determine that the commission rates paid by the Partnership are fair,
consistent and competitive with such other rates. Certain customers of Refco,
including accounts owned or managed by Randell Corporation, the parent of
Randell Commodity Corporation, pay, and will continue to pay, commissions at
rates both substantially less and substantially more than those that the
Partnership paid. The Partnership Agreement (to which each investor will be a
party) and the subscription agreement executed by each investor approve the
execution and delivery by the Partnership of the Customer Agreement between
Refco and the Partnership and authorize the payment to Refco by the Partnership
of brokerage fees at the rates provided for in the Customer Agreement. An
affiliate of Refco is the sole limited partner of RanDelta Capital Partners,
L.P. and has provided the assets necessary to enable RanDelta to act as the
Partnership's financial general partner. Randell Commodity Corporation is the
general partner of RanDelta. Therefore, the General Partners of the Partnership
may be reluctant to terminate Refco as the Partnership's futures commission
merchant. In addition, while neither the General Partners nor the Partnership
are affiliated with Refco, the affiliation of the sole limited partner of
RanDelta to Refco and the other relationships described in this prospectus may
create an incentive for Randell Commodity Corporation to actively trade the
Partnership's account in order to generate brokerage commissions for Refco.
However, as a limited partner, the sole limited partner of RanDelta does not
have the authority to participate
10
<PAGE> 16
in the management and control of or to render management or investment advice to
RanDelta. Furthermore, while the potential for such a conflict of interest
exists, there is a disincentive for Randell Commodity Corporation to generate
excessive brokerage commissions since its own compensation from the Partnership
would be adversely affected.
ARRANGEMENTS WITH FUTURES COMMISSION MERCHANT AND OTHERS. Randell
Commodity Corporation has in the past sold to its principals and/or associated
persons a variety of technical and other commodity market information. Some of
the data utilized by Randell Commodity Corporation concerning commodity accounts
managed by it is maintained on and provided from computer equipment owned by
Refco. Randell Commodity Corporation currently subleases office space from
Sparks Companies, Inc. and has offices adjacent to Sparks in Memphis and
utilizes the commodity research services and other research capabilities
provided by Sparks. Also, Randell Commodity Corporation and its principals
participate in investments in other ventures with persons associated with Refco;
they have had personal and business relationships with such persons over a
period of 15 years. However, no officer, director, employee or associated person
of Refco has any direct or indirect interest in Randell Commodity Corporation or
its income or profits and no officer, director or employee of Randell Commodity
Corporation has any interest, direct or indirect, in Refco. An affiliate of
Refco is the sole limited partner in RanDelta Capital Partners, L.P. and has
provided the assets necessary to enable that RanDelta to act as financial
general partner in the Partnership; therefore, the General Partners of the
Partnership may be reluctant to terminate the Partnership's relationship with
Refco.
COMPENSATION OF THE GENERAL PARTNERS. Because Randell Commodity
Corporation manages the Partnership and is its trading advisor, it has a
disincentive to replace itself if it performs poorly for the Partnership.
Randell Commodity Corporation is also a general partner in RanDelta Capital
Partners, L.P., the Partnership's other General Partner. In addition, the terms
of the General Partners' compensation have not been set by arm's-length
bargaining. The General Partners' compensation, however, decreases if the
Partnership performs poorly. In addition, the General Partners have a legal
fiduciary responsibility to the Partnership to exercise good faith and fairness
in all dealings affecting the Partnership. This is a rapidly developing and
changing area of the law, and you should consult your counsel about any
questions concerning the responsibilities of the General Partners. In the event
that an investor believes that the General Partners have violated their
responsibility, such investor may seek legal relief for himself and all other
similarly situated investors or on behalf of the Partnership under applicable
laws, including partnership and securities laws, to recover damages from or to
require an accounting by the General Partners. In addition, an investor may
institute legal proceedings or initiate reparation proceedings before a CFTC
administrative law judge against the General Partners or Refco for violations of
the anti-fraud and other provisions of the CEA.
INDEPENDENCE OF COUNSEL. The Partnership, its General Partners and the
Memphis branch of Refco are all represented by a single law firm. To the extent
that the Partnership and this offering would benefit by further independent
review, such a benefit will not be available in this offering. There is also an
absence of arm's-length negotiation with respect to the terms of this offering.
No other party will provide fully independent review of this offering or the
conduct of the Partnership's business.
OTHER RELATIONSHIPS. The sole shareholder of the parent of Randell
Commodity Corporation, Frank Watson, Jr., is a partner in the law firm which is
counsel to the Partnership, the General Partners, the Memphis branch of Refco,
the affiliate of Refco which is the sole limited partner in RanDelta Capital
Partner, L.P., and the commodity broker. The General Partners and Refco receive
compensation from the Partnership in various forms as described in this
prospectus. There are no other relationships among the General Partners, Refco
or any principal of them which may result in any conflict of interest.
11
<PAGE> 17
DESCRIPTION OF CHARGES TO THE PARTNERSHIP AND PARTNERS
The Partnership will be subject, directly or indirectly, to the
substantial charges summarized in this table and described in greater detail
below.
<TABLE>
<CAPTION>
Form of Amount of
Recipient Compensation Compensation
- --------- ------------ ------------
<S> <C> <C>
The General Partners Monthly Management Fee 1/3 of 1% per month of adjusted asset value
attributable to units held by investors (4%
annual rate).
Quarterly Incentive Fee 15% of any new trading gains attributable to
units held by investors.
Redemption Charges Investors must pay redemption fees on all units
redeemed on or prior to the end of the sixth,
ninth and twelfth months after the purchase of
those units.
Refco, Inc. Brokerage Commissions $32.50 per roundturn, estimated to amount to
30% of the Partnership's average net asset
value, determined annually.
Selling Agents Sales Commission 4% sales commission to the selling agent
responsible for a sale of units.
Brokerage Commissions Refco will pay monthly commissions, out of its
own brokerage commissions, to those selling
agents who are appropriately registered or
exempt from registration as futures commission
merchants. These commissions will equal
.4167% (5% per annum) of the net asset value
of the units sold by the selling agents and will
compensate these selling agents for continuing
services related to the purchase of units.
Other Periodic legal, accounting, auditing, The Partnership estimates that these expenses
postage, and other communication will equal 1.5% of the Partnership's average net
expenses, and all extraordinary asset value per year.
expenses and filing fees of the
Partnership.
</TABLE>
12
<PAGE> 18
COMPENSATION OF THE GENERAL PARTNERS
MANAGEMENT FEE. For acting as General Partners, commodity pool operator
and trading advisor, the General Partners will receive a monthly management
special allocation under the Partnership Agreement equal to 1/3 of 1% (4% per
annum) of the adjusted asset value of the Partnership attributable to the units
of limited partnership interest. Adjusted asset value generally means the market
value of all of the assets of the Partnership less certain expenses and
liabilities, but before deduction for the management allocation, the incentive
allocation described below and accrued brokerage commissions on open trades. The
management allocation will be calculated and added to the General Partners'
capital accounts each month regardless of whether the Partnership has any
profits. The burden of paying the management allocation will be charged entirely
against the units owned by investors.
INCENTIVE FEE. The General Partners will also receive a quarterly
incentive allocation under the Partnership Agreement equal to 15% of net new
appreciation achieved by units as of the end of any calendar quarter. The
incentive allocation will be charged only against the units of those investors
whose units have achieved net new appreciation as of the end of each calendar
quarter. "Net new appreciation" means the increase, if any, in the adjusted
asset value attained by such unit as of the end of any quarter (after reduction
for the management allocation chargeable to such unit) over the highest net
asset value of the unit as of the end of any prior quarter, adjusted for
distributions and redemptions. The incentive allocation will be calculated and
added to the General Partners' capital accounts each quarter; however, the
incentive allocation will not be paid to the General Partners unless there is
net new appreciation with respect to any individual unit as of the end of each
calendar quarter. Subject to the foregoing, if any payment is made to the
General Partners in respect of quarterly appreciation experienced by an
investor, and the investor thereafter incurs a decline in his respective net
asset value per unit for any subsequent calendar quarter, the General Partners
will retain the amount previously paid with respect to the prior appreciation.
However, no subsequent quarterly incentive allocation would be paid with respect
to any units which have increased in value until all of the declines for such
units are recovered, and the net asset value of such units reaches a quarterly
value in excess of any prior highest quarterly value.
For example, assume that as of January 1, 1997, the net asset value per
unit of investor #1 was $100, and that on March 31, 1997, the adjusted asset
value of the Partnership attributable to investor #1's units, after subtraction
of the management allocation, was $110. Investor #1 has experienced $10 in net
new appreciation, and would be charged an incentive allocation of $1.50,
resulting in a net asset value per unit for investor #1 of $108.50. Assume also
that during the quarter ending June 30, 1997, the Partnership experienced losses
such that the adjusted asset value of the Partnership attributable to investor
units, after subtraction of the management allocation, was $105. Investor #1
would be charged no incentive allocation for the quarter and his net asset value
per unit likewise would be $105. Further assume that investor #2 was admitted to
the Partnership as of July 1, 1997, at the Partnership's Average net asset value
per unit of $105 (again, an assumed figure). As of the end of the quarter ending
September 30, 1997, assume also that the adjusted asset value of the Partnership
attributable investor #1 and investor #2's units was $112, again after
subtraction of the management allocation. Investor #1 has experienced $3.50 of
net new appreciation ($112 less $108.50, the highest prior net asset value per
unit for investor #1), and would be charged an incentive allocation of $.525,
resulting in a net asset value per unit for investor #1 of $111.475. Investor
#2, on the other hand, has experienced $7 of net new appreciation, and would be
charged an incentive allocation of $1.05, resulting in a net asset value per
unit for investor #2 of $110.95. Therefore, because the incentive allocation is
computed separately for each investor's units, each investor's respective net
asset value per unit will differ depending upon when he enters the Partnership.
REDEMPTION CHARGES. Investors must pay the General Partners a 4%, 3%,
or 2% redemption fee, not to exceed 5% of the gross purchase price per unit, on
all redemptions made on or prior to the end of the sixth, ninth and twelfth
month, respectively, after the purchase of such units.
13
<PAGE> 19
FUTURES COMMISSION MERCHANT
BROKERAGE COMMISSIONS. The Partnership will pay Refco, Inc. brokerage
commissions at a rate (which includes pit brokerage fees) equal to $32.50 per
roundturn plus any applicable NFA and exchange fees. 50% of such brokerage
commissions will be paid to Refco upon the opening of a position and 50% will be
paid upon the closing of a position. These commissions are estimated to equal
30% of average Partnership net assets per year. Depending upon the volume of
trading and market conditions, however, they may equal or exceed the average net
asset value of the Partnership in any year.
SELLING AGENTS
SALES COMMISSIONS. The Partnership will pay selling agents who sell
units a commission equal to 4% of the subscription price for such units.
CONTINUING ("TRAIL") COMMISSIONS. Refco will pay to those selling
agents who are also appropriately registered or exempt from registration as
futures commission merchants, introducing brokers or associated persons a
monthly commission for continuing services related to the purchases of units.
Independent introducing brokers may introduce investors to the Partnership. The
amount of such continuing ("trail") commissions will be equal to .4167% (5% per
annum) of net asset value of those units sold by such selling agents that remain
issued and outstanding.
OTHER
The Partnership must pay periodic legal, accounting, auditing, postage
and other communication expenses and all extraordinary expenses and filing fees.
We estimate that these expenses will amount to 1.5% of average net asset value
per year. None of the General Partners' "overhead" expenses incurred in
connection with the administration of the Partnership (including but not limited
to, salaries, rent, and travel expenses) will be charged to the Partnership. Any
loans made by the General Partners to the Partnership will not bear interest in
excess of their interest costs or in excess of the rate charged by unrelated
banks on comparable loans.
Refco has paid all offering expenses of the Partnership relating to the
offering, including legal, accounting and auditing fees, printing costs,
solicitation and marketing costs, and other related fees and expenses. Other
than the payment of sales commissions on a continuous basis, the Partnership
will not reimburse Refco for any such organizational and offering costs.
The items described above represent all the compensation the General
Partners or their affiliates will receive either directly or indirectly as
charges to the Partnership or the investors.
14
<PAGE> 20
OPERATING EXPENSES
The following summary does not constitute a representation by the
Partnership as to the actual operating expenses of the partnership. Furthermore,
there can be no assurance that the expenses to be incurred by the partnership
will not exceed the amounts as projected or that there will be no other
expenses.
PROJECTED OPERATING EXPENSES
Attributable to Units Owned by Investors
for the Current 12-Month Period of Operations
(January 1 - December 31, 1999)
<TABLE>
<CAPTION>
Item Dollar Amount(1)
---- ----------------
<S> <C>
Management Allocations(2) $ 210,000
Incentive Allocations(3) --
Brokerage Commissions(4) 325,000
Exchange, Clearing Fees and NFA Charges 15,000
Administrative Expenses(5) 72,000
---------
Total $ 622,000
</TABLE>
- --------------
(1) All dollar amounts calculated based on the average net asset value
attributable to units owned by investors January through September
1999, and pro-rated for the remainder of the 12-month period.
(2) Fixed at 1/3 of 1% per month (a 4% annual rate) of the Partnership's
adjusted asset value attributable to units owned by investors at
month-end.
(3) Since the incentive fee is based on a formula (15% of net new
appreciation attributable to units owned by investors) which depends
upon Partnership trading performance, and since Partnership trading
performance is incapable of projection, the General Partner has
determined not to estimate these amounts.
(4) Based on roundturn brokerage commissions of $32.50, estimated to be
2.5% per month (30% per year).
(5) Based on the ordinary administrative expenses to be incurred by the
Partnership, estimated at 1.5% per year of the Partnership's average
month-end net assets. Assumes that the Partnership's net assets
attributable to units owned by investors remain unchanged throughout
the 12-month period. Of the administrative expenses, 15% is estimated
for postage and mailing supplies, 60% is estimated for audit and tax
services (including preparation of the Partnership's tax return,
required audits by CFTC regulations, accounting reviews for Form 10-K's
and 10-Qs), and 25% is estimated for legal fees.
A unit subscribed for at the net asset value of $100 must earn gross
trading profits plus interest income of $42.00 from the Partnership's trading
operations in order for an investor, upon redemption of such unit at the end of
one year, to receive $104 (representing the beginning net asset value of such a
unit at the commencement of trading operations plus the 4% sales commission)
after payment by the Partnership of its expenses and a 2% redemption fee.
If an investor purchased a unit at the net asset value of $104 per unit
and immediately redeemed the unit prior to the commencement of trading
operations (assuming that the Partnership Agreement would allow such an
immediate redemption), the investor would receive $96 after reduction for the 4%
sales commission and a 4% redemption charge.
15
<PAGE> 21
ACTUAL OPERATING EXPENSES
Attributable to Investorship Units
for the Previous 12-Month Period of Operations
(January 1 - December 31, 1998)
<TABLE>
<CAPTION>
Item Dollar Amount
---- -------------
<S> <C>
Management Allocations(1) $ 259,437
Incentive Allocations(2) 14,116
Brokerage Commissions(3) 737,296
Exchange, Clearing Fees and NFA Charges 32,785
Administrative Expenses(4) 72,000
-----------
Total $ 1,115,634
</TABLE>
- ---------------
(1) Fixed at 1/3 of 1% per month (a 4% annual rate) of the Partnership's
adjusted asset value attributable to units owned by investors at
month-end.
(2) The incentive fee is based on a formula equal to 15% of net new
appreciation attributable to units owned by investors.
(3) Based on roundturn brokerage commissions of $32.50.
(4) Based on the ordinary administrative expenses to be incurred by the
Partnership.
The General Partners will furnish to each investor a monthly account
statement describing the performance of the Partnership and setting forth the
aggregate management allocation, incentive allocation, brokerage commissions,
administrative expenses, and other fees and expenses incurred or accrued by the
Partnership during the month and certain other information.
16
<PAGE> 22
BREAK EVEN ANALYSIS
The following analysis takes into account all fees and expenses
enumerated above and is expressed in a dollar amount and as a percentage of a
$2,000 investment.
<TABLE>
<CAPTION>
Percentage of
Description of Charges $2,000 Investment $2,000 investment
---------------------- ----------------- -----------------
<S> <C> <C>
Syndication and Selling Expense $ 80 4%
Management Fee 80 4
Incentive Fee (15% of Net 32 1.6
New Appreciation)
Fund Operating Expense 30 1.5
Brokerage Commission 600 30
and Trading Fee
Less Interest Income (100) (5)
Redemption Charges 100 5
----- ----
Estimated Break Even Level
(Including Redemption Charges) $ 822 41.1%
===== ====
Estimated Break Even Level
(Without Redemption Charges) $ 704 35.2%
===== ====
</TABLE>
BUSINESS OF THE PARTNERSHIP
Ceres Fund, L.P. was organized as a limited partnership under the laws
of the State of Tennessee on September 19, 1990. We engage in speculative
trading of commodity futures contracts, forward contracts, commodity options and
other interests in commodities, including futures contracts and options on
financial instruments, physical commodities and stock indices on organized
exchanges in the United States and abroad. As of September 30, 1999, 100% of our
assets were held in Treasury Bills to support margin requirements for the Fund's
positions in commodities traded on U.S. exchanges. Approximately 90% of the
investments were in agricultural commodities.
USE OF PROCEEDS
We will deposit the net proceeds from the offering in our trading
account at Refco, to be used for trading in futures contracts and other
commodity interests in accordance with the trading techniques and policies of
Randell Commodity Corporation. Randell Commodity Corporation may invest funds
not required to be held by Refco in our trading account for the benefit of the
Partnership in short term interest bearing obligations, primarily in
governmental obligations and obligations of commercial banks. We will commit
approximately 50% of our assets as original margin for futures contracts, but
from time to time the percentage of assets committed as margin may be more or
less than such amount. The balance of our assets will be retained in our
commodity account with Refco to apply as additional margin, if needed, or for
operating purposes. We will make no loans. Pursuant to Section 4d(2) of the CEA,
our commodity account with Refco will be segregated and neither commingled with
the assets of any other entity, nor used as margin for any other account. Our
assets may be invested, from time to time, in other entities engaged in
commodity investments, but only if the commission burden on such assets does not
exceed that which such assets would have borne had we invested them directly.
Applicable laws and regulations may prevent
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<PAGE> 23
us from making any such investment. Deposit of assets with a futures commission
merchant as margin does not constitute prohibited commingling.
CAPITALIZATION
Our capitalization is set forth in our most recent financial statements
compiled by Padawer & Associates, an independent accounting firm, and is
included in this prospectus beginning at page F-20.
DISTRIBUTIONS TO PARTNERS
Randell Commodity Corporation will determine, in its sole discretion,
whether the Partnership makes any profit distributions. Randell intends to make
distributions only if the Partnership realizes substantial profits and only if
the average net asset value per unit is at least $100 after the distribution.
Subject to the foregoing, Randell intends to make annual cash distributions in
such amounts as will approximate a partner's tax liability with respect to
Partnership income for the fiscal year immediately preceding such distribution.
However, there can be no assurances that the Partnership will be able to make
such distributions as intended, and it is possible that the Partnership will
make no distributions in some years in which profits are realized. In addition,
each investor must include his share of profits into income for tax purposes
regardless of whether any distributions are made.
GENERAL PARTNERS
DESCRIPTION OF THE FINANCIAL GENERAL PARTNER
RanDelta Capital Partners, L.P., the financial general partner, is a
Tennessee limited partnership organized on September 19, 1990. Randell Commodity
Corporation, the Partnership's managing general partner, is the general partner
of RanDelta. The sole investor of RanDelta is an affiliate of Refco, the futures
commission merchant for the Partnership.
DESCRIPTION OF THE MANAGING GENERAL PARTNER
Randell Commodity Corporation, the managing general partner, is a
Tennessee corporation organized on January 10, 1983, and is the commodity pool
operator and the trading advisor for the Partnership. Randell has been
registered with the CFTC as a commodity pool operator since May 5, 1983, and as
a commodity trading advisor since July 1, 1984, and has been a member of the NFA
since March 24, 1984. Randell Commodity Corporation is a wholly owned subsidiary
of Randell Corporation, a Delaware corporation, which is wholly owned by Frank
L. Watson, Jr. Mr. Watson is Chairman of Randell Commodity Corporation and a
shareholder in the law firm of Baker, Donelson, Bearman & Caldwell, Memphis,
Tennessee, which is counsel to the Partnership, the General Partners and the
Memphis branch of Refco in connection with this offering. Mr. Watson will make
the Partnership's commodities trading decisions. Randell Corporation was
registered with the CFTC as a commodity pool operator from July 1, 1982, to June
29, 1992, and as a commodity trading advisor from July 1, 1982, to July 23,
1994.
The officers and directors of the managing general partner and their
business experience for the past 5 years are set forth below.
Frank L. Watson, Jr., Chairman. Mr. Watson, 59, received a Bachelor of
Arts degree from the University of Arkansas and a Juris Doctor degree from
Tulane University. He is the sole shareholder of Randell Corporation, the parent
of Randell Commodity Corporation, which is the Partnership's managing general
partner. Mr. Watson has been a director of Randell Commodity Corporation since
its inception. From 1973 to March 1998, Mr. Watson was an active partner in the
law firm of Waring Cox, PLC. In March 1998, Mr. Watson became a shareholder in
Baker, Donelson, Bearman & Caldwell, Memphis, Tennessee, where he is engaged in
the active practice of law.
Carol V. Watson, Vice President. Mrs. Watson, 51, is the wife of Mr.
Watson. Mrs. Watson was elected Vice President of Randell Corporation and
Randell Commodity Corporation in March 1989.
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<PAGE> 24
Marty Morgan, Secretary/Compliance Officer. Ms. Morgan, 55, received a
Bachelor of Arts degree in Professional Studies from the University of Memphis.
She was elected Secretary of Randell Corporation and
Randell Commodity Corporation in July 1989, and elected Compliance Officer in
May 1998. Since 1989, she has been employed as legal secretary to Mr. Watson but
has continued to retain her duties for both companies.
Billy F. Dutton Jr., Treasurer. Mr. Dutton, 40, received a Bachelor of
Science degree in Business Administration and a Masters of Business
Administration with a major in Accounting from Memphis State University. On
February 1, 1984, he was elected treasurer of Randell Commodity Corporation and
Randell Corporation. Mr. Dutton graduated from the Southern College of Optometry
in May of 1990. Since June 1990, he has maintained a full time practice but has
continued to retain his duties as treasurer.
ADMINISTRATIVE, CIVIL OR CRIMINAL ACTIONS
During the past 5 years, there have been no administrative, civil or
criminal actions against the General Partners or any principal or affiliate of
the General Partners.
DUTIES OF RANDELL COMMODITY CORPORATION AS THE MANAGING GENERAL PARTNER
Randell Commodity Corporation is responsible for:
- the preparation of monthly and annual reports to the
investors;
- filing reports required by the CFTC, the SEC and any other
federal or state agencies;
- calculation of adjusted asset value, net asset value and all
management and incentive allocations; and
- preparation of all accounting information.
Randell Commodity Corporation will provide suitable facilities and
procedures for handling redemptions, transfers, distributions of profits (if
any) and orderly liquidation of the Partnership. Although Refco will act as the
Partnership's initial futures commission merchant, Randell is responsible for
selecting other futures commission merchants in the event Refco is unable or
unwilling to continue in this capacity, and Randell will review, not less often
than annually, the brokerage commission rates charged to comparable commodity
pools by major futures commission merchants who acted as their sponsors to
determine that the commission rates paid by the Partnership are fair and
consistent and competitive with such other rates. Although Randell will act as
the Partnership's initial commodity trading advisor, if it becomes unable or
unwilling to act as such with respect to all or any portion of the Partnership's
assets, it may in its discretion select another qualified advisor or advisors.
Randell will seek to avoid any excessive trading in the Partnership's trading
accounts.
In the event of a decline as of the close of business on any day in the
average net asset value per unit to 50% (or less) of the highest average net
asset value at which units were purchased (after adjusting for all
distributions), Randell Commodity Corporation will cause the Partnership to
cease trading and within seven business days thereof will so notify the
investors and set a special redemption date. Included in such notification will
be a description of the investor's voting and redemption rights.
MINIMUM NET WORTH AND PURCHASE REQUIREMENTS
Randell Commodity Corporation is registered as a commodity pool
operator with the CFTC. At present, the CFTC itself imposes no minimum net worth
or "net capital" requirements on commodity pool operators. However, certain
state securities administrators, as a condition to approving the sale of units
in a commodity pool within their jurisdictions, require that the General
Partners and other commodity pool operators maintain a minimum net worth.
The Partnership Agreement requires the General Partners to contribute
to the Partnership the lesser of $100,000 or 3% of the total capitalization of
the Partnership. As of September 30, 1999, Randell Commodity Corporation
beneficially owned approximately $3,000, or .05%, and RanDelta Capital Partners,
L.P. and beneficially owned approximately $308,000 or 5.85% of the Partnership.
In no event will the General Partners'
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<PAGE> 25
interest be less than an amount which will entitle them to an interest of at
least 1% in each material item of Partnership income, gain, loss, deduction or
credit represented by units of General Partnership interest. The General
Partners will share Partnership losses and profits with the investors pro rata
to the extent of their investment. The General Partners may not transfer their
interests so long as they are acting as the General Partners. There are no
arrangements or commitments for any of the General Partners or their affiliates
to purchase units of limited partnership interest in the Partnership. At the end
of any month, the General Partners may withdraw funds from their Partnership
capital accounts, so long as the aggregate investment of the General Partners in
the Partnership meets the minimum investment requirements for the General
Partners discussed above and so long as the withdrawal does not impair the
ability of the Partnership to fulfill its obligations to the investors under the
Partnership Agreement or to the creditors of the Partnership. The General
Partners, Refco and/or their affiliates may purchase up to five percent (5%) of
the 100,000 units offered for investment purposes.
DEPARTURE OF DELTA INTERNATIONAL, INC.
On May 9, 1994, Delta International, Inc. legally terminated its
services as a trading advisor to the Partnership and withdrew as a co-general
partner of RanDelta Capital Partners, L.P. (the financial general partner)
effective March 31, 1994. These changes were effected without any cost or
expense to the Partnership.
PAST PERFORMANCE OF THE PARTNERSHIP
The following table presents our performance history.
YOU SHOULD NOT ASSUME THAT INVESTORS IN THE PARTNERSHIP WILL EXPERIENCE RETURNS,
IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE PAST. THE RESULTS
SET FORTH BELOW ARE NOT INDICATIVE OF ANY RESULTS THAT THE PARTNERSHIP MAY
OBTAIN IN THE FUTURE. THE PAST RESULTS OF THE OFFERED POOL DO NOT GUARANTEE THE
FUTURE PERFORMANCE OF THE PARTNERSHIP. THE RESULTS CONTAINED IN THESE TABLES
DERIVE TO AN EXTENT FROM THE UNCERTAIN NATURE AND FUNCTION OF THE COMMODITIES
MARKETS AS WELL AS THE DIVERGENT TRADING STRATEGIES, POLICIES AND METHODS OF THE
ADVISORS DIRECTING THE VARIOUS FUNDS.
Randell Commodity Corporation and its officers, directors, employees
and affiliates have in the past traded commodity interests for their own
accounts, and they plan to continue to do so. No investor will have access to
the records of any such trading of proprietary accounts.
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<PAGE> 26
CAPSULE PERFORMANCE OF CERES FUND, L.P.
Type of Pool: Publicly Offered (Continuous)
Date of Inception of Trading: December 1991
Aggregate Gross Capital Subscriptions to the Pool: $8,486,971
Net Asset Value as of September 30, 1999: $5,266,300
Largest Monthly Drawdown: Last Five Years-16%-6/97; Year-to-Date-5.48%-6/99
Worst Peak to Valley Drawdown: Last Five Years-42.27%-1/94-8/94;
Year-to-date-6.65%-6/99-7/99
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
Ceres - Percentage Rate of Return [computed on a compounded monthly basis]
<TABLE>
<CAPTION>
Month 1999 1998 1997 1996 1995 1994
- ----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Jan 2.68% -1.74% 1.50% 1.30% -1.70% -8.80%
Feb 8.42 1.07 -2.60 1.40 1.60 -0.60
Mar -2.60 8.84 -1.00 4.80 -8.30 -5.20
April 0.97 5.00 -1.00 50.60 6.80 -4.00
May 4.90 -4.68 3.80 8.70 3.00 -18.00
June -5.48 -4.76 -15.60 -3.50 19.50 -12.40
July -1.17 -4.16 4.80 6.30 -0.50 -0.40
Aug -0.16 -2.39 -1.50 2.20 5.60 -2.20
Sept -1.30 -1.06 2.20 2.40 25.00 5.80
Oct -10.36 0.20 2.30 18.10 -3.40
Nov -7.01 1.30 2.90 -5.70 -1.30
Dec -8.81 1.00 -0.90 11.40 9.80
----- ------ ------ ------ ------ -----
Annual% 5.72% -23.96% -8.19% 97.35% 96.17% 36.06%
</TABLE>
________________________________
"Drawdown" means losses experienced by the pool over a specified period.
"Largest Monthly Drawdown" means greatest decline in net asset value due to
losses sustained by the pool from the beginning to the end of a calendar month.
"Largest Peak to Valley Drawdown" means greatest cumulative decline in month-end
net asset value of the pool due to losses sustained during a period in which the
initial month-end net asset value of the pool is not equaled or exceeded by a
subsequent month-end net asset value.
"Rate of Return" is calculated each month by dividing net performance by
beginning net asset value. The monthly returns are then compounded to arrive at
the annual rate of return.
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<PAGE> 27
FUTURES COMMISSION MERCHANT
DESCRIPTION OF THE FUTURES COMMISSION MERCHANT
GENERAL. Refco will act as the Partnership's futures commission
merchant pursuant to the Customer Agreement described below. Refco, organized in
1969, is primarily engaged in the commodity brokerage business. Its principal
office is located at 111 W. Jackson Blvd., Suite 1800, Chicago, Illinois 60604,
and it has over 100 offices and agents located in the United States, Canada,
Europe, Australia and Singapore. It is a clearing member of the Chicago Board of
Trade, the Chicago Mercantile Exchange, and all other major United States
commodity exchanges.
CUSTOMER AGREEMENT. The Partnership and Refco have entered into a
non-exclusive Customer Agreement, which provides that Refco executes trades on
behalf of the Partnership pursuant to the instructions of Randell Commodity
Corporation. Under the Customer Agreement, the Partnership pays Refco brokerage
commissions on trades executed by it on behalf of the Partnership at a rate
(including pit brokerage fees) equal to $32.50 per round turn, plus applicable
exchange fees and NFA fees. Randell Commodity Corporation reviews the brokerage
commission rates charged to the Partnership by Refco at least annually to assure
itself that such rates are reasonable in relation to rates charged by other
futures commission merchants for similar services to commodity pools comparable
to the Partnership. In no event will the Partnership pay brokerage commissions
in excess of 80% of Refco's (or its successor's) published retail rate, plus pit
brokerage fees. The Customer Agreement may be cancelled by either the
Partnership or Refco at any time on 5 days' notice. While the Customer Agreement
is non-exclusive and the Partnership has the right to seek lower commission
rates from other brokers at any time, the General Partners do not intend to
negotiate with any other brokerage firms for brokerage services for the
Partnership so long as the rates and services charged and provided by Refco are
reasonable in relation to the rates charged by other futures commission
merchants for comparable services. Although the General Partners believe that
Refco's rates are generally competitive with those charged by other major
futures commission merchants, certain non-member customers of Refco pay and will
continue to pay commissions at rates which are both substantially below and
substantially higher than those to be charged to the Partnership. The commission
rates charged to the Partnership may not be as low as rates which might be
charged by other futures commission merchants for similar trades.
Refco assumes no responsibility under the Customer Agreement except for
rendering in good faith the services required of it under the agreement. The
Customer Agreement provides that Refco, its stockholders, directors, officers,
employees and associated persons shall not be liable to the Partnership, its
partners or any of their successors or assigns, except by reason of acts or
omissions due to misconduct, negligence or not having acted in good faith in the
reasonable belief that their actions were taken in, or not opposed to, the best
interests of the Partnership.
SELLING AGREEMENT. Pursuant to the Selling Agreements between the
Partnership and its various selling agents, Refco has agreed to pay to qualified
selling agents commissions on a continuing basis for services to be rendered by
the selling agents to investors in an amount equal to .4167% per month (5% per
annum) so long as the units for which they are responsible remain outstanding.
ADMINISTRATIVE, CIVIL OR CRIMINAL ACTIONS
Neither Refco nor any of its principals have been the subject of any
administrative, civil, or criminal action, whether pending, on appeal, or
concluded, within the preceding five years that Refco would deem material for
purposes of Part 4 of the CFTC Regulations, except as follows:
On December 20, 1994, Refco settled a CFTC administrative proceeding
(In the Matter of Refco, Inc., CFTC Docket No. 95-2) alleging that Refco
violated certain financial reporting, record keeping and segregation provisions
of the Commodity Exchange Act and CFTC regulations as a result of some of its
reporting and investment practices during 1990 and 1991. Without any hearing on
the merits of the CFTC allegations and without admitting any of the allegations,
Refco settled the matter and agreed to payment of a $1.25 million civil penalty,
entry of a cease and desist order, and appointment of an independent consultant
to review Refco's financial manual.
On January 23, 1996, Refco settled a CFTC administrative proceeding (In
the Matter of Refco, Inc., CFTC Docket No. 96-2) alleging that Refco violated
certain segregation and supervision requirements and prior cease and
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<PAGE> 28
desist orders. The CFTC allegations concerned Refco's consolidated margining of
certain German accounts which were maintained at Refco from 1989 through April
1992. Refco simply executed and cleared transactions for these accounts in
accordance with client instructions; Refco had no role in raising funds from
investors or in the trading decisions for these account. Refco had received what
it considered appropriate authorization from the controlling shareholder of the
account's promoters to margin the accounts and transfer funds between and among
the accounts on a consolidated basis. The CFTC maintained that Refco should not
have relied upon such authorizations for the final consolidation of the
accounts. Without admitting any of the CFTC allegations or findings, Refco
settled the proceeding and agreed to payment of a $925,000 civil penalty, entry
of a cease and desist order, and implementation of certain internal controls and
procedures.
On May 24, 1999, Refco settled a CFTC administrative proceeding (In the
Matter of Refco, Inc., CFTC Docket NO. 99-12) alleging that Refco violated
certain order taking, record keeping, and supervisory rules. The CFTC
allegations pertained to the period from January 1995 through December 1995 in
which Refco took trading instructions from an independent introducing
broker/broker-dealer that had discretionary trading authority over approximately
70 accounts. Without any hearing on the merits and without admitting any of the
allegations, Refco settled the proceeding and agreed to payment of a $6 million
civil penalty, entry of a cease and desist order, funding of a study on order
entry and transmission procedures, and a review of its compliance policies and
procedures related to its handling of trades by floor and back office personnel.
Refco does not believe that any of the foregoing matters are material
to the clearing and execution services that it will render.
OTHER
Refco acts only as the clearing broker for the Partnership and as such
will receive compensation from the Partnership for execution of orders on behalf
of the Partnership. Refco is not involved in the offering of the Partnership or
solicitation of investors, but has advanced funds for the organization of the
Partnership and the offering of units. Refco is not affiliated with the
Partnership in any way, is not a promoter or underwriter, and has not reviewed
this document or any other statements by the General Partners or any of their
employees or agents to determine their accuracy. Refco does not accept any
responsibility for any trading decisions made on behalf of the Partnership, any
statement in this document, any claim made by a representative of the General
Partners or the Partnership, or any monies or property of the Partnership not
maintained with Refco.
TRADING APPROACH
TRADING APPROACH AND THEORY
Randell Commodity Corporation will make the Partnership's trading
decisions. Randell believes that the greatest profits are realized by futures
traders who identify and concentrate on major moves in a particular commodity or
commodity complex. Randell Commodity Corporation intends to attempt to identify
these opportunities through the utilization of registered commodity
representatives who specialize in a single commodity or commodity complex. These
specialists will not have discretion to open or liquidate commodity positions on
behalf of the Partnership, but Randell believes that they, by virtue of their
specialization or concentration on a particular commodity or commodity complex,
have special insights into the trading opportunities presented from time to
time. Randell intends to trade accounts through these market specialists, who
will receive commissions thereon. A conflict of interest between the market
specialists and the Partnership may therefore exist. However, Randell Commodity
Corporation believes that its Base Capital Asset Management System and Campaign
Strategies Trading System, which are designed to limit losses and drawdowns,
will provide incentives to the market specialists to recommend only the most
promising trading opportunities. The timing of market entry and exit and the
amount of risk to be taken with respect to a particular opportunity are to be
determined using the technical approaches described below and "stop loss"
trading policies developed by Randell Commodity Corporation.
THE BASE CAPITAL ASSET MANAGEMENT SYSTEM (B-CAM)
The Base Capital Asset Management System is a money management system
which acts as a filter with respect to
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<PAGE> 29
- the allocation of capital to a particular futures trading
opportunity,
- the amount of margin utilized in a futures position,
- the amount of loss realized in a futures position,
- the preservation of profits achieved in a particular futures
position, and
- the termination of a particular futures position.
THE CAMPAIGN STRATEGIES TRADING SYSTEM
The Campaign Strategies Trading System has two basic aspects:
- the "overview", which attempts to determine which commodities
produce the most promising opportunities, and
- the technical trading model, which attempts to anticipate the
direction of futures prices and to establish positions which
will capitalize on price trends.
For the "overview," Randell Commodity Corporation segregates futures
into two major groups: agriculture commodities, such as grains, livestock &
meats, and other foods, and financial futures such as currencies, financial
instruments, and metals. Generally speaking, Randell Commodity Corporation has a
bias towards holding contracts in agricultural commodities.
The Campaign Strategies Trading System will monitor over 50 distinct
commodity futures contracts traded on recognized commodity exchanges. These
contracts may, however, be summarized into separate futures groupings within two
major categories, "Agricultural" and "Financial," as follows:
Agricultural: (1) Grains
(2) Soybean Complex
(3) Fiber & Forest Products
(4) Livestock & Meats
(5) Foods & Imports
For example, Grains include Corn, Oats and Wheat. Soybean Complex includes
Soybeans, Soybean Meal and Soybean Oil. Fibers & Forest Products represent
Cotton and Lumber. Livestock & Meats include Live Cattle, Live Feeder Cattle,
Hogs and Pork Bellies. Foods and Imports (sometimes referred to as "exotics")
include Cocoa, Coffee, Orange Juice and Sugar.
Financial: (1) Currencies
(2) Financial Instruments
(3) Stock Index
(4) Metals
(5) Energy
Examples of Currencies are British Pound, Deutsche Mark, Japanese Yen,
Swiss Franc and U.S. Dollar Index. Financial Instruments include T-Bills,
T-Bonds and Eurodollars. Stock Index Futures include NYSE Composite, S&P 500
Index and Dow Jones Industrials. Metals Futures contain Copper, Gold, Platinum
and Silver. Energy futures include Heating Oil, Light Crude Oil, Natural Gas and
Unleaded Gas.
After analyzing these two major futures groups from a fundamental
standpoint to determine which commodities or commodity complexes produce the
most promising opportunities, Randell Commodity Corporation then applies
technical analysis to confirm which opportunities it should undertake and the
size of the positions to be taken. The technical factors used by Randell are
statistically generated, sometimes computer generated, and involve, among other
things:
- weighted moving averages
- stochastics
- directional movement indicators
- Fibonacci analysis
- trend analysis
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<PAGE> 30
The use of these factors may be qualitative and not quantitative;
therefore, Randell Commodity Corporation will exercise a significant degree of
discretion in connection with the application of the Campaign Strategies Trading
System. The intended result of this process is to take only those positions that
appear to provide the most promising opportunities.
The B-CAM and Campaign Strategies Trading Systems are the result of a
joint development effort between Randell Commodity Corporation and Delta
International, Inc., a Tennessee corporation (until March 31, 1994, a trading
advisor to the Partnership), and are property owned by each of them. They will
not be made available to investors. We can give no assurance that these systems
will result in profits for the Partnership. These systems are dynamic and will
undergo significant changes and adjustments from time to time.
TRADING POLICIES
OBJECTIVE. Our objective is to achieve capital appreciation of its
assets through speculative trading in commodity futures contracts, forward
contracts, commodity options and other interests in commodities including
futures contracts and options on financial instruments, physical commodities and
stock indices on organized exchanges in the United States and abroad.
PARTNERSHIP RESTRICTIONS. The Partnership will not
- borrow (except as stated below) or loan money;
- permit commission rebates or give-ups to be received by
Randell Commodity Corporation;
- invest in securities (other than those in which customers'
funds are permitted to be invested under the Commodity
Exchange Act and regulations thereunder);
- commingle Partnership assets except as permitted by law; or
(5) permit churning of Partnership commodity trading accounts.
TRADING POLICIES. In general, we will attempt to operate within the
following trading policies, but no representation is made that such policies
will be adhered to at all times.
1. We will take positions in futures contracts which are traded
in sufficient volume to permit, in the opinion of Randell
Commodity Corporation, ease of taking and liquidating
positions.
2. In an effort to limit risk, Randell Commodity Corporation will
seek to diversify our portfolio among several commodities.
This is expected to substantially reduce the effect of any
single commodity on the portfolio's overall risk and to
contribute to consistency of performance.
3. We may occasionally make or accept delivery of a commodity in
order to take advantage of market anomalies. Normally, we will
dispose of such deliveries promptly by retendering to the
appropriate clearing house the warehouse receipt representing
the delivery. If such retendering does not promptly occur, our
position in the physical commodity will be fully hedged. For
example, one such anomaly, known as a "cash and carry"
situation, enables a trader to establish a long futures
position in a nearby delivery month offset by a short position
in a more distant delivery month at a price differential
virtually guaranteeing a profit. The profit, however, might
only be realizable by a trader having sufficient capital to
accept delivery of (and pay for) the commodities and redeliver
them against the open short futures position. We expect that
we may engage in such transactions, utilizing portions of our
reserves to carry the cash commodities. Although not often
available, we consider such "cash and carry" situations to be
comparatively low risk transactions.
4. We will not acquire additional positions in any futures or
forward contract for any contract month or option if such
additional positions would result in a net long or short
position for that futures or forward contract or option for
that month requiring as margin or premium more than 15% of our
adjusted asset value. For purposes of implementing this
policy, soybean oil and soybean meal will be treated as one
commodity.
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<PAGE> 31
5. We will not acquire additional positions in any futures or
forward contract or option if such additional positions would
result in the aggregate net long or short positions for all
futures or forward contracts and options requiring as margin
or premium for all outstanding positions more than 80% of our
adjusted asset value.
6. We generally will avoid entering into an open position in a
futures contract in any commodity after delivery has commenced
in the commodity for the contract month of the contract.
7. In connection with ownership of cash commodities, we may
borrow from banks or other sources using the cash commodities
as collateral. We could use these borrowings to finance the
acquisition of cash commodities or to supply variation margin
as required for any offsetting short futures positions.
8. We will not:
(a) Loan money to, or guarantee the obligations of, any
General partner, except open account indebtedness incurred for
goods or services rendered in the ordinary course of our
commodity trading business;
(b) Commingle our assets with those of any other person,
except to the extent permitted under applicable law;
(c) Trade in cash commodities unless the commodity is, in
general, hedged;
(d) Engage in the pyramiding of our positions (i.ei., the use
of unrealized profits on existing positions to provide margins
for additional commodity futures contracts of the same or a
related underlying commodity). However, our open trade equity
on existing positions will be taken into account in
determining whether to acquire additional commodity contracts;
(e) Permit trading of our commodity trading account for the
purpose of generating excessive brokerage commissions; or
(f) Trade in coin futures.
ADJUSTED ASSET VALUE AND NET ASSET VALUE
ADJUSTED ASSET VALUE. The adjusted asset value of the Partnership is
its assets less certain of its liabilities determined in accordance with
generally accepted accounting principles, including any unrealized profits and
any unrealized losses on open commodity positions. More specifically, adjusted
asset value of the Partnership means the sum of all cash, United States Treasury
bills and other securities (valued at cost plus accrued interest and discount),
the liquidating value (or cost of liquidation, as the case may be) of all
futures positions and the fair market value of all other assets of the
Partnership less all liabilities of the Partnership. However, that adjusted
asset value does not include:
- a reduction for the monthly management allocation or the
quarterly incentive allocation, or
- any unamortized organizational and offering expenses or
related liabilities of the Partnership.
The value of a contract or option will be based upon the settlement
price on the commodity exchange on which the contract or option is traded by the
Partnership. However, if a contract could not be liquidated on the day for which
adjusted asset value is being determined, the settlement price on the next day
on which the contract could be liquidated will be the basis for determining the
liquidating value of the contract, or such other value the General Partner deems
fair and reasonable. In calculating unrealized profit or loss on an open futures
position, the commission, if any, which would be incurred in liquidating the
open position will not be taken into account, nor will any accrued brokerage
fees.
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<PAGE> 32
NET ASSET VALUE OF THE PARTNERSHIP. We determine the net asset value of
the Partnership by subtracting the management allocation for the month of
determination, and, if such month is the last month of a calendar quarter, the
incentive allocation for the quarter of determination, from the adjusted asset
value of the Partnership.
NET ASSET VALUE PER UNIT. Net asset value per unit for each unit owned
by a investor is calculated as of the end of each month in the following manner:
STEP 1 - The aggregate adjusted asset value allocable to units
held by investors is determined by multiplying (A) the
aggregate adjusted asset value of the Partnership (including
units held by investors and the interest of the General
Partners) as of the end of the month in question by (B) the
ratio of (1) the aggregate net asset value of the units held
by investors at the beginning of the month in question, to (2)
the aggregate net asset value of the Partnership (including
units held by investors and the interest of the General
Partners) at the beginning of the month in question.
STEP 2 - The adjusted asset value allocable to the units owned
by each investor is determined by multiplying the result
determined in Step 1 above by the ratio of (A) the aggregate
net asset value of the investor's respective units at the
beginning of the month in question, to (B) the aggregate net
asset value of all units in the Partnership held by investors
at the beginning of the month in question.
STEP 3 - The adjusted asset value allocable to each unit owned
by a investor is determined by dividing the result in Step 2
by the number of units owned by the investor.
STEP 4 - The net asset value per unit for each unit owned by
an investor is determined by subtracting (A) the management
allocation allocable to each unit for the month, and (B) if
the month is the ending month of a calendar quarter, the
quarterly incentive allocation (if any) allocable to each
unit, from the result determined under Step 3 above.
In the event an investor acquires units on different dates, for
purposes of the above determinations, the investor will be treated as a separate
investor for the units acquired on each date. Since the amount of the management
allocation and incentive allocation charged to an investor's units will depend
upon the timing of the investor's purchase of units and the Partnership's
income, the net asset value per unit of each investor's units may differ.
For units purchased during the offering, the average net asset value
per unit is determined on the last day of the month preceding the entry of the
investor to the Partnership by dividing (A) the difference between (1) the
result from Step 1 above, and (2) the sum of (a) the aggregate of the management
allocation chargeable to all units during the preceding month, and (b) if such
month is the ending month of a calendar quarter the incentive allocation (if
any) chargeable to all units as of the end of such quarter, by (B) the number of
units outstanding at the end of the month.
The net asset value of the General Partners' interest in the
Partnership is calculated by subtracting the aggregate net asset value allocable
to the units owned by investors from the aggregate net asset value of the
Partnership.
Upon request, the General Partners will advise you of the current
adjusted asset value per unit, the net asset value per unit and the number of
units credited to your account, as well as the current average net asset value
per unit.
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TRANSFERS AND REDEMPTIONS
RESTRICTIONS ON TRANSFER
The Partnership Agreement specifies how an investor may make a valid
transfer of all or part of his interest. The transfer may not terminate the
Partnership for federal income tax purposes, and it must satisfy applicable
securities laws. A transferor may be required to furnish a satisfactory opinion
of counsel to the effect that neither the contemplated transfer nor any offering
in connection with that transfer violates any provision of any federal or state
securities or comparable law. Except for transfers by gift, inheritance,
intra-family transfers, family dissolutions, and transfers to affiliates, no
transfer may be made of less than all of the units owned by the investor where,
after the transfer, either the transferee or the transferor would hold less than
the minimum number of units equal an initial minimum purchase. Investors must
obtain Randell Commodity Corporation's consent for all transfers. Consent may be
withheld for any reason.
REDEMPTIONS
POWER TO REDEEM UNITS. An investor, on 10 days' written notice to
Randell Commodity Corporation, may cause the Partnership to redeem any or all of
his units as of the last day of any calendar quarter. The amount an investor
will receive on redemption will be the redemption net asset value per unit less
any amount owed by the investor to the Partnership. An investor may not,
however, redeem any unit until after 6 full months from the time he purchased
that unit. The "redemption net asset value per unit" is calculated the same as
the net asset value per unit described in the previous section, except that the
commissions which would be incurred to liquidate an open futures position, as
well as any accrued brokerage fees, are subtracted from Partnership adjusted
asset value. Redemptions made on or prior to the end of the sixth, ninth and
twelfth month after the purchase of such units will be charged a 4%, 3%, and 2%
redemption fee, respectively. However, the redemption fee will not exceed 5% of
the gross purchase price of the units. Investors redeeming their units shall pay
these charges to the General Partners.
REQUESTS TO REDEEM. Except as otherwise noted, the Partnership will
honor all requests for redemption in proper form. The Partnership will liquidate
its commodity positions to the extent necessary to make redemptions. The right
to redeem is contingent upon the Partnership having enough property to discharge
its liabilities on the date of redemption. It is also contingent on receipt by
Randell Commodity Corporation of a request for redemption in the form attached
to the Partnership Agreement (or any other form approved by Randell Commodity
Corporation) at least 10 days prior to the date on which redemption is
requested. Payment will be made within 15 days after the date of redemption.
However, under special circumstances (such as the inability on the part of the
Partnership to liquidate commodity positions or default or delay in payments due
the Partnership from futures commission merchants, banks or other persons) the
Partnership may delay payments to partners requesting redemption of units. The
amount of the delayed payment will be equal to the proportionate part of the net
asset value of the units represented by the sums that are the subject of such
default or delay.
SPECIAL REDEMPTION DATE. The Partnership Agreement also provides for a
mandatory special redemption date if the average net asset value per unit
declines to 50% or less than the highest average net asset value per unit at
which units have been purchased (after adjusting downward for all
distributions), as of the close of business on any day. In the event of such a
decrease, the Partnership will suspend all trading and liquidate all open
positions as promptly as practicable. Randell Commodity Corporation must then
either withdraw from the Partnership (which would likely cause its termination)
or declare a special redemption date pursuant to which investors will have an
opportunity to redeem their units before trading recommences. There are no
assurances that the Partnership's open positions could be liquidated in a timely
manner or without substantial additional losses. However, the special redemption
is intended to help investors limit the percentage of their initial investment
that they risk losing by assuring them of a suspension of trading and an
opportunity to redeem after a certain level of losses is incurred.
If trading resumes after a special redemption date, subsequent special
redemption dates will occur if the average net asset value per unit has
decreased to 50% or less of the highest average net asset value per unit at
which units any investor has purchased since the previous special redemption
date (or the average net asset value per unit at the previous special redemption
date, if higher), after adjusting downward for all distributions.
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Randell Commodity Corporation may, in its discretion, declare a special
redemption date at any time, if it determines that doing so would be in the best
interests of the Partnership. A special redemption date, unlike routine
quarterly redemptions, involves a suspension of trading and liquidation of open
positions.
Randell Commodity Corporation may redeem any units held by any
investor, without the investor's consent, if it believes that doing so is
desirable for the protection of the Partnership or its partners. The units will
be redeemed at the redemption net asset value. Ten days' notice of the
redemption will be given. If it is not done at the end of a calendar month or
quarter, the redemption will not include a reduction for any accrued management
or incentive allocation.
The liability of investors, including the liability of a person who had
units redeemed, for liabilities of the Partnership which arose before such
redemption, is described under "The Partnership Agreement-Nature of the
Partnership" in Part Two of this prospectus.
See "Certain Federal Income Tax Aspects of Investing in the
Partnership" for information concerning federal income tax aspects of
redemptions.
ALLOCATION OF PROFITS AND LOSSES
FINANCIAL ALLOCATIONS
Each investor and each General Partner (the General Partners and the
investors, collectively, are considered to be "partners" for purposes of the
following explanation of the Partnership's accounting and tax allocations,
redemptions, and federal income tax issues) will have a capital account, the
initial balance of which will consist of the partner's cash contribution to the
Partnership.
FEDERAL TAX ALLOCATIONS
At the end of each fiscal year, the Partnership's taxable income,
expense, capital gain and loss will be allocated among the partners. Each
partner must include his share of these items in his personal income tax return.
MANAGEMENT AND INCENTIVE ALLOCATIONS. The Partnership will allocate the
management allocation each month to each unit in proportion to the investor's
adjusted asset value as determined in Step 3 in "Adjusted Asset Value and Net
Asset Value" above. The incentive allocation (if any) for each unit will be
calculated and allocated each quarter to those units that have net new
appreciation for the quarter.
ORDINARY INCOME AND EXPENSE. The Partnership will allocate items of
ordinary income and expense (excluding the management allocation and the
incentive allocation), such as interest income, brokerage fees and expenses
incidental to trading, pro rata among the partners based on their capital
accounts (referred to in the Partnership Agreement as the partner's respective
"Partnership Percentage Interest") as of the beginning of each month in which
the items of ordinary income and expense accrue.
CAPITAL GAIN. The Partnership will allocate capital gain first to each
investor who redeemed a unit during the fiscal year up to any excess of the
amount received upon redemption of the unit over the tax basis account
maintained for the redeemed unit. If the capital gain to be allocated is less
than the excess of all amounts received for redeemed units over all
corresponding tax basis accounts, the entire amount of such capital gain will be
allocated among the investors who redeemed units at a value in excess of those
units' respective tax basis accounts in the ratio that each investor's excess
bears to the aggregate excesses of all such investors.
Any capital gain remaining after the allocation described in the
previous paragraph will be allocated among all investors whose capital accounts
are in excess of their tax basis accounts (after increasing such accounts in the
amount of the allocations described in the previous paragraph) in the ratio that
each such investor's amount of additional excess bears to all such investors'
excess. If the gain to be allocated is greater than the excess of all such
investors' capital accounts over all such tax basis accounts, the amount of the
additional gain will be allocated among all investors in the ratio that each
investor's capital account bears to all investors' capital accounts.
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CAPITAL LOSS. The Partnership will allocate capital loss first to each
investor who redeemed a unit during the fiscal year up to any excess of the tax
basis account maintained for the redeemed unit over the amount received upon
redemption of the unit. If the aggregate capital loss to be so allocated is less
than the excess of all tax basis accounts for redeemed units over the amount
received upon redemption of such units, the entire amount of such loss will be
allocated among the investors that redeemed units at a value less than such
units' tax basis accounts in proportion to the amounts by which the redemption
value for each unit was less than the tax basis.
Any capital loss remaining after the allocation described in the
previous paragraph will be allocated among the investors whose tax basis
accounts are in excess of their capital accounts (after decreasing such tax
basis accounts in the amount of the allocations described in the previous
paragraph) in ratio that each such investor's excess bears to all such
investors' excesses. If the loss to be so allocated is greater than the excess
of all such investors' tax basis accounts over all such capital accounts, the
amount of such additional loss will be allocated among all investors in the
ratio that each investor's capital account bears to all investors' capital
accounts.
"MARKED-TO-MARKET" GAIN OR LOSS. Any gain or loss required to be taken
into account in accordance with the "marked-to-market" provisions of Section
1256 of the Internal Revenue Code will be considered capital gain or loss for
purposes of the foregoing allocations. The General Partners' interest in the
Partnership will be treated on a unit-equivalent basis for purposes of such
allocation.
SHORT VS. LONG-TERM CAPITAL GAIN. In the event that future tax
legislation restores the distinction, generally eliminated in the Tax Reform Act
of 1986, between short and long-term capital gain, the allocations of capital
gain described above shall be pro rata between short and long-term capital gain.
The allocation of profit and loss is intended to eliminate, to the
extent possible, any disparity between a partner's capital account and his tax
basis account in a manner consistent with principles set forth in Section 704(c)
of the Internal Revenue Code.
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CERTAIN FEDERAL INCOME TAX ASPECTS OF INVESTING IN THE PARTNERSHIP
THE FOLLOWING IS A SUMMARY OF SOME OF THE FEDERAL INCOME TAX CONSEQUENCES TO
INVESTORS RESULTING FROM AN INVESTMENT IN THE PARTNERSHIP BASED UPON THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). THE SUMMARY ALSO
INCLUDES RULES, REGULATIONS AND EXISTING INTERPRETATIONS RELATING TO THE CODE,
ANY OF WHICH COULD BE CHANGED AT ANY TIME. A COMPLETE DISCUSSION OF ALL FEDERAL,
STATE AND LOCAL TAX ASPECTS OF AN INVESTMENT IN THE PARTNERSHIP IS BEYOND THE
SCOPE OF THIS SUMMARY. YOU MUST CONSULT YOUR OWN TAX ADVISERS ON SUCH MATTERS.
PROSPECTIVE INVESTORS WHO ARE GENERALLY EXEMPT FROM TAX SHOULD CAREFULLY REVIEW
THE SECTION ENTITLED "PURCHASES BY EMPLOYEE BENEFIT PLANS" IN PART TWO OF THIS
PROSPECTUS.
PARTNERSHIP STATUS
PARTNERSHIP CLASSIFICATION. The General Partners have been advised by
their counsel, Baker, Donelson, Bearman & Caldwell, that in its opinion, under
present laws, regulations and judicial interpretations (all of which are subject
to change), and subject to 90% or more of the Partnership's gross income being
"qualifying income" as discussed below in this section, the Partnership will be
classified as a partnership for federal income tax purposes and not as an
association taxable as a corporation. The General Partners have not obtained and
do not intend to request a ruling from the Internal Revenue Service confirming
this tax treatment.
CORPORATION CLASSIFICATION. If the Partnership should at any time be
classified as an association taxable as a corporation, the investors would not
be treated as partners for tax purposes. Therefore, income or loss of the
Partnership would not pass through to the investors and the Partnership would be
subject to tax on its income at the rates applicable to corporations. In
addition, all or a portion of distributions made by the Partnership to the
investors could be taxable to them as dividends or capital gains, while none of
those distributions would be deductible by the Partnership in computing its
taxable income.
Certain "publicly traded partnerships" are taxed as corporations. Code
Section 7704 defines publicly traded partnerships as partnerships whose
interests are traded on an established securities market or are readily
tradeable on a secondary market (or the substantial equivalent thereof).
Although units will not be traded on an established securities market or a
secondary market, the legislative history to Section 7704 states that the
substantial equivalent of a secondary market exists if the partnership has a
"regular plan of redemptions ... so that the holders of interests have readily
available, regular and ongoing opportunities to dispose of their interests...."
Furthermore, the Internal Revenue Service will classify an open-ended
partnership (e.g., one that has a continuous offering feature such as the
Partnership) that has a redemption feature as a publicly-traded partnership
unless the partnership agreement requires at least 60 days prior written notice
of the partner's intent to redeem. Our Partnership Agreement only requires 10
days' notice. Accordingly, it is likely that the Partnership will be classified
as a publicly-traded partnership.
CONSEQUENCES OF CLASSIFICATION. Even if the Partnership is classified
as a publicly-traded partnership, there is an exception from tax treatment as a
corporation if 90% or more of the Partnership's gross income for the taxable
year is "qualifying income." Qualifying income includes certain kinds of passive
income, such as interest, dividends, and in the case of a partnership whose
principal activity is the buying and selling of commodity interests, income and
gains from commodities or futures, options or forward contracts from such
commodities.
The General Partners intend that all of the income of the Partnership
will constitute "qualifying income" within one or more of the foregoing
categories. In addition, the Partnership Agreement prohibits the General
Partners from causing the Partnership to fail the 90% qualifying income safe
harbor. Accordingly, while the offering and redemption features of the
Partnership may cause the Internal Revenue Service to classify the Partnership
as a publicly-traded partnership, it is unlikely that the Service would treat
the Partnership as a corporation for federal income tax purposes.
The remainder of this section assumes that the Partnership will be
classified as a partnership for federal income tax purposes.
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TAXATION OF PARTNERS ON PROFITS OR LOSSES OF THE PARTNERSHIP
GENERAL. The Partnership, as an entity, will not be subject to federal
income tax. In general, each partner, including each investor, is required to
take into account, in his taxable year within which a taxable year of the
Partnership ends, his distributive share of all items of Partnership income,
gain, loss or deduction for the taxable year of the Partnership. A partner must
take such items into account even if the Partnership does not make any
distributions to the partner during his taxable year.
EFFECT OF ALLOCATIONS. The allocations made pursuant to the Partnership
Agreement generally determine a partner's distributive share of all items of
Partnership income gain, loss or deduction for federal income tax purposes,
unless such items as so allocated do not have "substantial economic effect" or
are not in accordance with the partners' interests in the Partnership. Under the
Partnership Agreement, allocations are generally made in proportion to partners'
capital accounts and therefore have "substantial economic effect." However, the
allocations required by the Partnership Agreement in connection with the
management and incentive allocations, redemptions or purchases of units
generally will not be in proportion to capital accounts. Nonetheless, the
General Partners believe such allocations are permitted for tax purposes, and
the income tax regulations seem to support that belief. If such allocations are
not permitted, each Partner's distributive share of the items that are the
subject of the allocations would be redetermined based upon his interest in the
Partnership. Any redetermination might result in a larger share of Partnership
income being allocated (solely for tax purposes) to partners who did not redeem
or purchase units during a given taxable year than was allocated to them
pursuant to the Partnership Agreement.
SHARE OF LOSSES. The amount of any Partnership loss (including capital
loss) that a partner is entitled to include in his personal income tax return is
limited to his tax basis for his interest in the Partnership as of the end of
the Partnership's taxable year in which such loss occurred. Generally, a
partner's adjusted tax basis for his interest in the Partnership is (A) the
amount paid for such interest, (B) reduced (but not below zero) by his share of
any Partnership distributions, losses and expenses, and (C) increased by his
share of the Partnership's income, including gain.
"60/40 RULE" FOR CAPITAL GAIN OR LOSS. Assuming that the Partnership
meets the requirements to be treated as a "qualified fund" and elects to be so
treated (as discussed below), the General Partners anticipate that gain or loss
recognized with respect to all futures contracts, forward contracts and options
traded on domestic exchanges by the Partnership will be characterized as capital
gain or loss. Of this gain or loss, 60 percent will be treated as long-term and
40 percent will be treated as short-term, regardless of the holding period of
the contracts (the "60/40 rule"). Income derived by the Partnership from
investing funds not required for trading in interest-bearing obligations will
generally be ordinary income.
In general, long-term capital gain is subject to tax at the same rate
as ordinary income, but is subject to a maximum rate of 28 percent (legislation
is currently pending which could reduce the maximum long-term capital gains tax
rate). For corporations, gain is subject to a maximum rate of 35 percent. Net
capital losses are deductible by individuals only to the extent of capital gains
(whether long-term or short-term) for the taxable year plus $3,000. As an
example, under these rules if a partner's distributive share of Partnership
interest income (which constitutes ordinary income for tax purposes) was $5,000,
the partner's distributive share of Partnership trading losses (which constitute
capital losses for tax purposes) was $5,000 and the partner had no other capital
gains, the partner would have $2,000 of income subject to tax despite having
derived no economic gain from his investment in the Partnership. Corporations
may deduct capital losses only to the extent of capital gains.
The Partnership will meet the requirements to elect "qualified fund"
status if:
(1) the Partnership has at all time at least 20 partners, and
no single partner owns more than 20% of the interests in the
capital or profits of the Partnership;
(2) the principal activity of the Partnership at all times
consists of buying and selling futures contracts, forward
contracts and options with respect to commodities;
(3) at least 90% of the gross income of the Partnership
consists of interest, dividends, income and gains from futures
contracts, forward contracts or options with respect to
commodities and certain other capital gains; and
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(4) no more than a de minimis amount of the gross income of
the Partnership consists of income from trading in "spot"
commodities.
The Partnership met these requirements for all prior years and has elected
"qualified fund" status. The General Partners anticipate that the Partnership
will continue to meet these requirements in future years. If the Partnership
fails to meet any of the above requirements in a taxable year:
- a net loss recognized by the Partnership in such taxable year
from all futures contracts, forward contracts and options with
respect to foreign currencies traded by the Partnership will
be characterized as a capital loss, and
- a net gain recognized by the Partnership in such taxable year
from such contracts will be characterized as ordinary income.
If the Partnership did not elect such status, the Partnership's trading of
certain bank forward contracts, with respect to foreign currencies, foreign
currency futures contracts traded on foreign exchanges and certain similar
instruments would result in ordinary income (or loss) against which the capital
losses from the Partnership's other trading activities might not be fully
deductible.
THE "MARKED-TO-MARKET" SYSTEM. The "marked-to-market" system of
taxation and the 60/40 rule will apply to most, if not all, futures contracts,
forward contracts and options which the Partnership will trade. Under the
marked-to-market system, any unrealized profit or loss on positions in contracts
which are open at the end of the Partnership's taxable year will be treated as
if such profit or loss had been realized for tax purposes. If an open position
on which profit or loss has been recognized by the end of a taxable year
declines in value after year-end and before the position is in fact offset, a
loss is recognized for tax purposes. The converse is the case with an open
position on which a marked-to-market loss was recognized for tax purposes as of
the end of a taxable year but which subsequently increases in value prior to
being offset.
TREATMENT OF INCOME AND LOSS UNDER THE PASSIVE LOSS RULES
The Internal Revenue Code contains rules, known as "passive loss
rules," designed to prevent the deduction of losses from "passive activities"
against income not derived from such activities, including income from
investment activities not constituting a trade or business, such as interest,
dividends and salary. In accordance with Temporary Treasury Regulations
promulgated under the Code relating to the passive loss rules, the ownership of
units will not constitute a "passive activity," with the result that income
derived from the Partnership's trading activities will constitute income not
from a passive activity. This means that losses resulting from a partner's
"passive activities" (including most "tax shelter" limited partnerships) cannot
be offset against such income and net losses from Partnership operations will be
deductible in computing the taxable income of an investor (subject to other
limitations on the deductibility of such losses).
LIMITED DEDUCTION FOR CERTAIN EXPENSES
Prior law permitted individual taxpayers who itemized deductions to
deduct expenses of producing income, including investment advisory fees, when
computing taxable income. The Internal Revenue Code now provides that such
expenses are to be aggregated with unreimbursed employee business expenses and
other expenses of producing income. These are called "miscellaneous itemized
deductions." The aggregate amount of the miscellaneous itemized deductions will
be deductible only to the extent the deductions exceed 2% of a taxpayer's
adjusted gross income. The General Partners intend not to treat any part of the
management or incentive allocations payable to the General Partner as a
miscellaneous itemized deduction subject to the 2% floor. If the Internal
Revenue Service successfully asserted that the Partnership should have treated
all or any portion of the Partnership's expenses as miscellaneous itemized
deductions, investors could be required to file amended tax returns and to pay
additional taxes plus interest and penalties. The General Partners reserve the
right to determine in their sole discretion how to treat the Partnership's
expenses for federal income tax purposes.
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CASH DISTRIBUTIONS AND REDEMPTIONS OF UNITS
CASH FROM DISTRIBUTIONS OR PARTIAL REDEMPTIONS. A partner's receipt of
cash from the Partnership as a distribution or in redemption of less than all of
his interest generally does not result in taxable income to that partner.
Rather, such distribution reduces (but not below zero) the total tax basis of
all of the units held by the partner after the distribution or redemption. Any
cash distribution in excess of a partner's adjusted tax basis for his interest
in the Partnership is treated as gain from the sale or exchange of his interest.
Because a partner's tax basis in his units is not increased on account of his
distributive share of the Partnership's income until the end of the
Partnership's taxable year, distributions during the taxable year could result
in taxable gain to a partner. This is true even if no gain would result if the
same distributions were made at the end of the taxable year. Furthermore, the
share of the Partnership's income allocable to a partner at the end of the
Partnership's taxable year would also be includable in the partner's taxable
income and would increase his tax basis in his remaining interest in the
Partnership as of the end of such taxable year.
CASH FROM TOTAL REDEMPTION. Redemption for cash of a partner's entire
interest in the Partnership will result in the recognition of gain or loss for
federal income tax purposes. Such gain or loss will be equal to the difference
between the amount of the cash distribution and the partner's adjusted tax basis
for his interest. A partner's adjusted tax basis for his interest in the
Partnership includes for this purpose his distributive share of the
Partnership's income or loss for the year of redemption.
LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT INDEBTEDNESS
Interest paid or accrued on indebtedness properly allocable to property
held for investment is investment interest. Interest expense incurred by an
investor that is allocable to such investor's investment in units generally will
be investment interest. In addition, an investor's allocable share of interest
expense incurred by the Partnership, if any, will be investment interest. Such
interest is generally deductible by noncorporate taxpayers only to the extent
that it does not exceed net investment income. An investor's distributive share
of net Partnership income and any gain from the disposition of units will be
treated as investment income. However, an investor's net capital gain from the
disposition of units is not investment income unless the investor waives the
benefit of the lower preferred tax rate on such gains. It is not clear whether
an investor's distributive share of Partnership net capital gain constitutes
investment income where such gain is taxed at the maximum lower preferred rate.
Interest expense incurred by an investor to acquire his units generally will be
investment interest expense. Any investment interest expense disallowed as a
deduction in a taxable year solely by reason of the above limitation is treated
as investment interest paid or accrued in the succeeding taxable year.
SYNDICATION EXPENSES
The Partnership must capitalize expenditures made in connection with
its syndication; it cannot amortize these expenses. Syndication expenditures
include amounts incurred to promote the sale of, or to sell, units in the
Partnership, such as any:
- offering fees,
- sales commissions,
- legal fees incident to the syndication, and
- printing costs.
The Internal Revenue Service could take the position that (1) a portion
of the management allocation and incentive allocation paid to the General
Partners constitutes non-deductible syndication expenses, and (2) a portion of
the General Partners' distributive share of Partnership income, gains or cash
distributions constitutes non-deductible syndication expenses. The General
Partners believe that no portion of the fees or distributive share constitute
non-deductible syndication expenses. The General Partners anticipate devoting a
substantial amount of time to the management of the Partnership and its trading
activities, which should support a finding that such allocations are proper.
However, the Internal Revenue Service may disagree with this position.
Finally, the Internal Revenue Service may contend that a portion of the
brokerage commissions paid by the Partnership to Refco constitute non-deductible
syndication expenses under the theory that such commissions are to reimburse
Refco for its advance of the Partnership's organizational and offering expenses,
or because selling agents
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may receive compensation from Refco on an ongoing basis from a portion of the
commodity brokerage commissions paid by the Partnership. If the Service were
successful in this regard, the Partnership would have to capitalize such
amounts, thereby increasing the amount of gain (or reducing the amount of loss)
allocable to the partners for the Partnership's trading activities.
PARTNERSHIP AUDITS; PENALTIES
The tax treatment of Partnership-related items is determined at the
Partnership level rather than at the partner level. Randell Commodity
Corporation has been appointed as "tax matters partner" with the authority to
determine the Partnership's response to an audit. However, Randell does not have
the authority to settle tax controversies on behalf of any investor who files a
statement with the Internal Revenue Service stating otherwise. The limitations
period for assessment of deficiencies and claims for refunds with respect to
items related to the Partnership is three years after the Partnership's return
for the taxable year in question is filed. Randell may extend such period for
all investors. If an audit results in an adjustment, all partners may be
required to file amended tax returns. The partners' amended tax returns may
themselves also be subject to audit, additional taxes, interest and penalties.
Section 6662 of the Internal Revenue Code imposes a 20% penalty for any
substantial understatement of income tax liability or for any negligent
disregard of tax rules or regulations.
- A "substantial understatement" exists if the total
understatement of tax liability for the taxable year exceeds
the greater of 10% of the tax required to be shown on the
return or $5,000.
- "Negligence" includes any failure to make a reasonable attempt
to comply with the tax laws.
- "Disregard" includes any careless, reckless or intentional
disregard.
If a partner makes a substantial understatement of personal tax
liability, the partner may be subject to this penalty for any disallowed item
unless (1) his treatment of the item is supported by "substantial authority" or
(2) the relevant facts affecting the tax treatment of such items are disclosed
in the return or in a statement attached to the return. A special rule is
applicable if an item is attributable to a "tax shelter." In order to avoid the
penalty for understatement of tax liability for a tax shelter item, in addition
to the "substantial authority" requirement, the taxpayer must reasonably believe
that the tax treatment was more likely than not the proper treatment. Based on
the expected activities of the Partnership, the General Partners do not believe
that the Partnership is a "tax shelter" for this purpose. The Internal Revenue
Service or the courts, however, may disagree with this position.
STATE AND LOCAL TAXES
In addition to the federal income tax consequences described above, the
Partnership and the partners may be subject to various state and local taxes.
Certain of such taxes could, if applicable, have a significant effect on the
amount of tax payable on an investment in the Partnership. State and local
authorities may require a partner to include the partner's distributive share of
the profits when determining reportable income. State and local taxation of
gains and losses from certain of the Partnership's activities may be
inconsistent with the treatment of such gains and losses for federal income tax
purposes.
----------------
Unless otherwise indicated, the statements regarding the federal income
tax consequences to the partners of an investment in the Partnership are based
upon the provisions of the Internal Revenue Code currently in effect and
existing administrative and judicial interpretations. Administrative, judicial
or legislative changes (other than those discussed above) may occur that would
make the above discussion incorrect or incomplete.
The above tax discussion is not intended as a substitute for careful
tax planning, particularly since certain of the income tax consequences of an
investment in the Partnership may not be the same for all taxpayers.
PROSPECTIVE INVESTORS IN THE PARTNERSHIP ARE URGED TO CONSULT THEIR TAX
ADVISORS FOR INFORMATION ON THEIR OWN TAX SITUATION UNDER FEDERAL LAW
AND APPLICABLE STATE AND LOCAL LAWS BEFORE SUBSCRIBING FOR UNITS.
35
<PAGE> 41
PLAN OF DISTRIBUTION
The units will be offered by the Partnership through its selling agents
who are members of National Association of Securities Dealers ("NASD") pursuant
to a selling agreement between the Partnership, the selling agents and Refco.
The units will be offered on a best efforts basis without any firm underwriting
commitment. The compensation to the selling agents is described in detail in
"Description of Charges to the Partnership." Selling agents may pay a portion of
any compensation to their respective employees.
The Partnership will offer units for sale valued as of the first
business day of each month at the then current average net asset value per unit,
plus a selling commission of 4%, until the maximum number of units offered are
sold. Purchasers of units during the offering will be admitted on the first
business day of the month following the month in which their subscription is
received. Subscriptions must be received by the General Partners not later than
the fifth day prior to the end of a month in order for a subscriber to be
admitted on the first business day of the next month. Proceeds from the sale of
units during the offering will be added to the Partnership's trading account.
Interest earned on such proceeds prior to closing applicable to such units will
be retained by the Partnership. The number of units subscribed for will be
determined for each subscriber by dividing the average net asset value per unit
on the first day of such month, plus 4% selling commission, into the amount
tendered by such subscriber. Fractional units will be issued.
The Partnership is registering 100,000 units for sale under this
prospectus. However, after all 100,000 units have been sold, Randell Commodity
Corporation may, in its discretion, subsequently register an additional 400,000
units and increase the number of units to 500,000 and make additional public or
private offerings of units. However, the net proceeds to the Partnership of any
such sales shall in no event be less than the average net asset value per unit
at the time of sale. Randell Commodity Corporation, and not the Partnership,
will bear, or cause others to bear, all expenses related to the offering or any
additional offering. No investor will have any preemptive, preferential or other
rights with respect to the issuance or sale of any additional units.
Randell Commodity Corporation may reject any subscription in whole or
in part for any reason. All subscriptions are irrevocable.
HOW YOU CAN INVEST
You must invest a minimum of $2,000, plus a selling commission of 4% of
the average net asset value per unit purchased. Some states' securities laws
impose higher minimums.
In order to purchase units, you must:
- complete and execute the subscription agreement found in the
separate subscription documents, and the attached power of
attorney; and
- deliver or mail the subscription agreement, the power of
attorney forms and a check made payable to Ceres Fund, L.P.
for the full purchase price of the units subscribed for to the
selling agent, which will forward the check and the other
subscription documents to Randell Commodity Corporation, 889
Ridge Lake Boulevard, Memphis, Tennessee 38120. You must have
the power of attorney notarized. We will determine the number
of units purchased by calculating the then current average net
asset value per unit, plus the 4% sales commission.
We must receive your subscription at least 5 days prior to the last day of the
month in order to admit you on the first business day of the next month.
LEGAL MATTERS
Baker, Donelson, Bearman & Caldwell of Memphis, Tennessee will pass
upon the legality of the units offered by means of this prospectus.
36
<PAGE> 42
EXPERTS
The financial statements of Ceres Fund, L.P. as of December 31, 1998
and 1997, and for the three years ended December 31, 1998, are included here in
reliance upon the reports of KPMG LLP, independent certified public accountants,
and upon the authority of KPMG LLP as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Partnership filed with the Securities and Exchange Commission in
Washington, D.C. a registration statement under the Securities Act of 1933, as
amended, for the securities offered. This prospectus does not contain all of the
information set forth in the registration statement. For further information
regarding the Partnership and the securities offered, you should review the
registration statement. You may inspect the registration statement without
charge at the public reference facilities maintained by the Securities and
Exchange Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C., or
obtain a copy of it from the Commission by writing to the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Statements made in this prospectus
as to the contents of any contract, agreement or other document are not
necessarily complete. Many of these contracts, agreements or other documents are
filed as exhibits to the registration statement. You should review these
exhibits for a more complete description of the matter involved. Each statement
in this prospectus relating to other contracts, agreements or documents shall be
deemed qualified in its entirety by reference to these exhibits.
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934 and will file reports and other information with
the Securities and Exchange Commission. You may inspect and copy these reports
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at 75 Park Place, 14th Floor, New York, New York 10007 and Everett
McKinley Dirkson Building, 219 South Dearborn Street, Room 1204, Chicago,
Illinois 60604.
37
<PAGE> 43
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Financial Statements and Schedule
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
To the best of my knowledge and belief, the information
contained herein is accurate and complete.
Frank L. Watson Jr., Chairman
Randell Commodity Corporation
General Partner and Commodity Pool Operator
Ceres Fund, L.P.
F-1
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
The Partners
Ceres Fund, L.P.:
We have audited the accompanying statements of financial condition of Ceres
Fund, L.P. (a Tennessee Limited Partnership) as of December 31, 1998 and 1997
and summary of net asset values as of December 31, 1998, 1997 and 1996, and the
related statements of operations, changes in partners' capital and cash flows
for each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ceres Fund, L.P. (a Tennessee
Limited Partnership) as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included
in Schedule 1 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
KPMG LLP
Memphis, Tennessee
February 12, 1999
F-2
<PAGE> 45
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Cash $ 140,972 155,155
Equity in commodity futures trading account:
U.S. government obligations at fair value (cost of
$5,293,365 and $6,269,786 at December 31, 1998
and 1997, respectively) 5,322,469 6,308,524
Cash 452,502 141,589
Unrealized gains (losses) on open futures contracts (466,699) 27,202
Open option contracts, at market 51,875 10,780
Interest receivable 2,973 4,395
----------- -----------
Total assets $ 5,504,092 6,647,645
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued management fees $ 17,191 20,855
Accrued incentive fees 0 1,662
Other accrued expenses 63,429 60,387
Redemptions payable 137,884 80,700
----------- -----------
Total liabilities 218,504 163,604
----------- -----------
Partners' capital:
General partners 283,263 357,891
Limited partners 5,002,325 6,126,150
----------- -----------
Total partners' capital 5,285,588 6,484,041
----------- -----------
$ 5,504,092 6,647,645
=============================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 46
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Operations
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net (losses) gains on trading of commodity futures
and options contracts:
Realized gains (losses) on closed positions $ (488,722) 472,553 3,457,913
Change in unrealized losses on open
futures contracts (493,901) (158,830) (45,994)
Change in unrealized gains (losses)
on open options contracts 41,095 10,780 (1,840)
------------ ------------ ------------
Net (losses) gains on investments (941,528) 324,503 3,410,079
Investment income - interest (note 3) 332,240 294,507 187,206
------------ ------------ ------------
(Loss) income from operations (609,288) 619,010 3,597,285
------------ ------------ ------------
Brokerage commissions (note 3) 737,296 797,000 541,907
Exchange, clearing fees and NFA charges 32,785 41,772 23,322
Management fee allocations (note 2) 259,437 223,279 151,969
Incentive fee allocations (note 2) 14,116 3,091 384,117
Professional and administrative expenses 72,000 58,403 82,026
------------ ------------ ------------
1,115,634 1,123,545 1,183,341
------------ ------------ ------------
Net (loss) earnings $ (1,724,922) (504,535) 2,413,944
============ ============ ============
Net (loss) earnings allocated to
general partner $ (74,628) (16,850) 208,349
============ ============ ============
Net (loss) earnings allocated to
limited partners $ (1,650,294) (487,685) 2,205,595
============ ============ ============
Average net (loss) earnings per unit $ (50.01) (19.61) 115.23
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 47
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Changes in Partners' Capital
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Partners' capital at December 31, 1995 $ 166,392 2,831,228 2,997,620
Capital contributions (395 units) 0 96,154 96,154
Redemption of units (2,798 units) 0 (442,122) (442,122)
Distributions 0 (288,507) (288,507)
Net income 208,349 2,205,595 2,413,944
------------ ------------ ------------
Partners' capital at December 31, 1996 374,741 4,402,348 4,777,089
Capital contributions (13,552 units) 0 2,755,044 2,755,044
Redemption of units (1,555 units) 0 (299,329) (299,329)
Distributions (1,862 units) 0 (244,228) (244,228)
Net loss (16,850) (487,685) (504,535)
------------ ------------ ------------
Partners' capital at December 31, 1997 357,891 6,126,150 6,484,041
Capital contributions (4,353 units) 0 866,406 866,406
Redemption of units (1,944 units) 0 (339,937) (339,937)
Net loss (74,628) (1,650,294) (1,724,922)
------------ ------------ ------------
Partners' capital at December 31, 1998 $ 283,263 5,002,325 5,285,588
============ ============ ============
</TABLE>
<TABLE>
<S> <C>
Average net asset value per limited partnership unit at:
December 31, 1998; 34,206.8518 units outstanding $ 146.24
============
December 31, 1997; 31,797.3173 units outstanding $ 192.66
============
December 31, 1996; 17,938.6369 units outstanding $ 245.41
============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 48
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $ (1,724,922) (504,535) 2,413,944
Adjustments to reconcile net (loss) earnings to
net cash provided (used) by operating activities:
Net unrealized losses on open contracts 452,806 148,050 47,834
(Increase) decrease in operating assets:
Investments in commodities futures
trading account 675,142 (1,858,269) (1,641,232)
Interest receivable 1,422 4,262 (3,601)
Increase (decrease) in operating liabilities:
Accrued management fees (3,664) 10,822 (44)
Accrued incentive fees (1,662) (31,187) (65,111)
Other accrued expenses 3,042 17,843 27,055
------------ ------------ ------------
Net cash (used in) provided by
operating activities (597,836) (2,213,014) 778,845
Cash flows from financing activities:
Net proceeds from sale of limited partnership units 866,406 2,755,044 96,154
Redemptions of limited partnership units (282,753) (251,201) (493,476)
Distributions to limited partners 0 (244,228) (288,507)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 583,653 2,259,615 (685,829)
------------ ------------ ------------
Net (decrease) increase in cash (14,183) 46,601 93,016
Cash at beginning of year 155,155 108,554 15,538
------------ ------------ ------------
Cash at end of year $ 140,972 155,155 108,554
==================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 49
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Summary of Net Asset Values
December 31, 1998
<TABLE>
<CAPTION> TOTAL
NUMBER NUMBER NUMBER NUMBER NET ASSET LIMITED
SUBSCRIBER OF UNITS OF UNITS OF UNITS OF UNITS VALUE PARTNER NET
ADMISSION DATE SUBSCRIBED WITHDRAWN DISTRIBUTED OUTSTANDING PER UNIT ASSET VALUE
- ------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1996 43,256.2273 (22,527.1643) 1,793.0394 17,522.1024 $ 146.6195 2,569,081
November 1, 1996 239.4689 (65.0721) 41.3760 215.7728 146.6195 31,636
December 1, 1996 155.2598 (73.6830) 27.5246 109.1014 146.6195 15,996
January 1, 997 708.7734 (251.8320) 0.0000 456.9414 146.6195 66,997
February 1, 1997 1,555.9517 (225.5000) 0.0000 1,330.4517 146.6194 195,070
March 1, 1997 2,630.9876 (463.1330) 0.0000 2,167.8546 146.5239 317,642
April 1, 1997 3,704.4494 (163.7290) 0.0000 3,540.7204 146.3058 518,028
May 1, 1997 1,381.6388 (259.8730) 0.0000 1,121.7658 146.0901 163,879
June 1, 1997 988.1934 (113.8470) 0.0000 874.3464 146.6194 128,196
July 1, 1997 826.3808 (6.8940) 0.0000 819.4868 143.2701 117,408
August 1, 1997 493.4459 0.0000 0.0000 493.4459 144.2740 71,191
September 1, 1997 209.0262 0.0000 0.0000 209.0262 143.9424 30,088
October 1, 1997 496.1560 0.0000 0.0000 496.1560 144.3731 71,631
November 1, 1997 229.6653 0.0000 0.0000 229.6653 144.4227 33,169
December 1, 1997 327.4226 0.0000 0.0000 327.4226 144.7055 47,380
January 1, 1998 103.8085 0.0000 0.0000 103.8085 144.8718 15,039
February 1, 1998 509.8596 (50.8030) 0.0000 459.0566 144.5137 66,340
March 1, 1998 1,177.3329 0.0000 0.0000 1,177.3329 144.7433 170,411
April 1, 1998 717.5374 0.0000 0.0000 717.5374 146.2485 104,939
May 1, 1998 422.0476 0.0000 0.0000 422.0476 146.2485 61,724
June 1, 1998 669.0029 0.0000 0.0000 669.0029 146.2485 97,840
August 1, 1998 506.3963 (9.7090) 0.0000 496.6873 145.9705 72,501
September 1, 1998 29.1615 0.0000 0.0000 29.1615 146.2467 4,265
October 1, 1998 217.9573 0.0000 0.0000 217.9573 146.2418 31,874
----------- ------------ ---------- ----------- ---------- ---------
61,556.1511 (24,211.2394) 1,861.9400 34,206.8518 $ 146.2376 5,002,325
=========== ============ ========== =========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 50
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Summary of Net Asset Values
December 31, 1997
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER NUMBER NET ASSET TOTAL LIMITED
SUBSCRIBER OF UNITS OF UNITS OF UNITS OF UNITS VALUE PARTNER NET
ADMISSION DATE SUBSCRIBED WITHDRAWN DISTRIBUTED OUTSTANDING PER UNIT ASSET VALUE
- ------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1996 43,256.2273 (27,202.5977) 1,793.0394 17,846.6690 $ 192.7624 $ 3,440,167
November 1, 1996 239.4689 (65.0721) 41.3760 215.7728 192.7624 41,593
December 1, 1996 155.2598 0.0000 27.5246 182.7844 192.7624 35,234
January 1, 1997 708.7734 0.0000 0.0000 708.7734 192.7624 136,625
February 1, 1997 1,555.9517 0.0000 0.0000 1,555.9517 192.7623 299,929
March 1, 1997 2,630.9876 0.0000 0.0000 2,630.9876 192.7625 507,155
April 1, 1997 3,704.4494 0.0000 0.0000 3,704.4494 192.7624 714,078
May 1, 1997 1,381.6388 0.0000 0.0000 1,381.6388 192.7624 266,328
June 1, 1997 988.1934 0.0000 0.0000 988.1934 192.7624 190,486
July 1, 1997 826.3808 0.0000 0.0000 826.3808 190.5557 157,472
August 1, 1997 493.4459 0.0000 0.0000 493.4459 191.8761 94,680
September 1, 1997 209.0262 0.0000 0.0000 209.0262 191.4386 40,016
October 1, 1997 496.1560 0.0000 0.0000 496.1560 192.0056 95,265
November 1, 1997 229.6653 0.0000 0.0000 229.6653 192.0699 44,112
December 1, 1997 327.4226 0.0000 0.0000 327.4226 192.4436 63,010
----------- ------------ ---------- ----------- ------------ ------------
57,203.0471 (27,267.6698) 1,861.9400 31,797.3173 $ 192.6625 $ 6,126,150
=========== ============ ========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 51
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Summary of Net Asset Values
December 31, 1996
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER NET ASSET TOTAL LIMITED
SUBSCRIBER OF UNITS OF UNITS OF UNITS VALUE PARTNER NET
ADMISSION DATE SUBSCRIBED WITHDRAWN OUTSTANDING PER UNIT ASSET VALUE
- ------------------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
January 1, 1996 43,256.2273 (25,712.3191) 17,543.9082 245.38 $ 4,304,987
November 1, 1996 239.4689 0.0000 239.4689 246.28 58,977
December 1, 1996 155.2598 0.0000 155.2598 247.23 38,384
----------- ------------ ----------- ----------- ------------
43,650.9560 (25,712.3191) 17,938.6369 245.41 $ 4,402,348
=========== ============ =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 52
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Ceres Fund, L.P. (the Partnership) is a Tennessee limited
partnership organized on September 19, 1990 to engage in the
speculative trading of commodities futures contracts and other
commodity interests. Randell Commodity Corporation (Randell) and
RanDelta Capital Partners, L.P. (RanDelta) are the general
partners. Randell serves as the managing general partner and
RanDelta serves as the financial general partner. Randell acts as
commodity trading advisor with respect to the Partnership.
The Partnership solicited subscriptions for a maximum of 100,000
units of limited partnership interest at $105 per unit ($100 net
of commission). During the initial offering period 13,471.6805
units were sold and the Partnership commenced trading commodity
futures contracts on December 1, 1991. The Partnership continues
to sell units as of the end of each month at the then average net
asset value per unit plus a selling commission of 4% in
accordance with the terms of the Limited Partnership Agreement,
and can continue selling units until the maximum number of units
offered have been sold.
Income and expenses of the Partnership (excluding the Management
Allocation and Incentive Allocation) are allocated pro rata among
the partners based on their respective capital accounts as of the
beginning of the month in which the items of income and expense
accrue, except that limited partners have no liability for
partnership obligations in excess of his or her capital account,
including earnings. The Management Allocation and Incentive
Allocation are allocated to the Limited Partners only in
accordance with the terms of the Limited Partnership Agreement.
Units may not be redeemed during the first six months after they
are purchased. Thereafter, limited partners may redeem their
units at the redemption net asset value per unit as of the end of
any calendar quarter upon ten days written notice to the managing
general partner. The redemption charge will be based on the
redemption net asset value on all units redeemed as more fully
described in the offering prospectus.
Under the terms of the partnership agreement, the Partnership
will terminate on the earlier of December 31, 2020, or the
occurrence of certain events as more fully described in the
Limited Partnership Agreement.
(B) EQUITY IN COMMODITY FUTURES TRADING ACCOUNT
U.S. government obligations represent investments in U.S.
Treasury Bills with a maturity of 90 days or less and are carried
at fair value and any unrealized gains and losses are reflected
in income. Cash represents deposits at brokers and funds
temporarily held in interest bearing accounts.
F-10
<PAGE> 53
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
(C) FUTURES CONTRACTS AND OPTIONS CONTRACTS
Futures contracts are required to be made on a commodity exchange
and call for the future delivery of various agricultural and
nonagricultural commodities, currencies or financial instruments
at a specified time and place. These contractual obligations,
depending on whether one is a buyer or a seller, may be satisfied
either by taking or making physical delivery of an approved grade
of the particular commodity (or, in the case of some contracts,
by cash settlement) or by making an offsetting sale or purchase
of an equivalent commodity futures contract on the same (or a
linked) exchange prior to the designated date of delivery. In
market terminology, a trader who purchases a futures contract is
"long" in the futures market, and a trader who sells a futures
contract is "short" in the futures market. Outstanding futures
contracts (those that have not been closed out by an offsetting
purchase or sale or by delivery) are known as "open trades" or
"open positions."
Among the agricultural commodities for which there are futures
contracts are corn, oats, wheat, soybeans, soybean oil, soybean
meal, live cattle, live hogs, pork bellies, coffee, sugar, cocoa
and cotton. Nonagricultural commodities for which there are
futures contracts include copper, silver, gold, platinum, lumber,
currency, Treasury bonds and bills, mortgage-backed securities,
Eurodollar deposits, certain petroleum products and stock,
inflation and interest rate related indices.
An option on a futures contract gives the purchaser of the option
the right (but not the obligation) to take a position at a
specified price (the "striking", "strike" or "exercise" price) in
the underlying futures contract. Options have limited life spans,
usually tied to the delivery or settlement date of the underlying
futures contract. Some options, however, expire significantly in
advance of such date. The value of an option at any given point
in time is a function of market volatility and the price level of
the underlying futures contract.
Open futures contracts are valued at the settlement price on the
date of valuation as determined by the exchange on which the
contract was traded. Changes in the market value of open futures
contracts, entered into for speculative investing, are recorded
as unrealized gains or losses in the accompanying statement of
operations. Realized gains and losses (excluding commissions and
other exchange related fees) are recognized when such contracts
are closed.
(D) INCOME TAXES
No provision for income taxes has been made in the accompanying
financial statements since, as a partnership, income and losses
for tax purposes are allocated to the partners for inclusion in
their respective tax returns.
F - 11
<PAGE> 54
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
(E) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(F) RECLASSIFICATIONS
Certain 1997 and 1996 amounts have been reclassified to conform
to their 1998 presentation.
(G) AVERAGE NET (LOSS) EARNINGS PER UNIT
The average net (loss) earnings per unit as reported on the
statement of operations was calculated as (loss) earnings
allocated to the limited partners divided by average outstanding
units during the year.
(G) RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, SFAS No. 133, " Accounting for Derivative
Instruments and Hedging Activity," was issued. This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. This statement is
effective for fiscal years, and quarters of fiscal years
beginning after June 15, 1999. The Partnership intends to comply
with this statement in 2000.
(H) YEAR 2000
The Partnership is addressing the issues associated with the
programming code in existing computer systems as the millennium
(year 2000) approaches. The year 2000 problem is pervasive and
complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate
erroneous data or cause a system to fail.
The Partnership utilizes computer systems and applications
maintained by Refco, Inc. ("Refco"), its commodity broker, for
trading activities and recordkeeping. Management has assessed the
impact of Year 2000 issues on the computer systems and
applications, on which the Partnership relies. The operators of
the systems have developed a remediation plan. Conversion and
implementation activities for mission critical systems are in
process and management expects implementation and testing, by the
operators, to be completed by the middle of 1999. The
Partnership's costs associated with these systems changes will
not be material, because of its
F-12
<PAGE> 55
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
relationship with Refco. Estimates of the completion date for
implementation and testing of mission critical systems are based
on assumptions which management and the operators believe are
reasonable and appropriate.
(2) MANAGEMENT AGREEMENT
The Partnership has entered into a Management Agreement in consideration
of and as compensation for the services to be rendered by the General
Partners and trading advisors. The Partnership pays a monthly Management
Allocation equal to 1/3 of 1% (4% per annum) of the Adjusted Net Asset
Value of units at month end, plus a quarterly Incentive Allocation of
15% of any net new appreciation in the adjusted net asset value of units
for the quarter. Such fees were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Management fees $ 259,437 223,279 151,969
Incentive fees 14,116 3,091 384,117
</TABLE>
(3) CUSTOMER AGREEMENT WITH REFCO, INC.
The Partnership entered into a customer agreement with Refco, pursuant
to which the Partnership deposits its assets in a commodity trading
account with Refco who executes trades on behalf of the Partnership. The
Partnership agrees to pay such brokerage and commission charges and fees
as Refco may establish and charge from time to time. Refco charges the
Partnership commissions on commodity trades at the rate of $32.50 per
round-turn. Total commissions charged to the Partnership by Refco in
1998, 1997 and 1996 were $737,296, $797,000 and $541,907, respectively.
The Partnership earns interest on Treasury Bills held in its account, on
interest-bearing accounts and on 80% of the average daily equity
maintained as cash in the Partnership's trading account at a rate that
approximated the average yield on 13-week United States Treasury Bills.
Total interest earned by the Partnership in 1998, 1997 and 1996 was
$332,240, $294,507 and $187,206, respectively.
(4) RELATED PARTIES
The sole shareholder of the parent of the managing General Partner is an
active partner in the law firm which is the counsel to the Partnership,
the General Partners and the Memphis branch of Refco, the Partnership's
commodity broker.
(5) DISTRIBUTION TO LIMITED PARTNERS
F-13
<PAGE> 56
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
On January 16, 1997, the General Partner declared a distribution to the
limited partners equal to the difference between the December 31, 1996
net asset value per unit and $210 per unit. This distribution, totaling
$244,228 in cash (approximately $13.61 per unit) and 1,861.94 in units,
resulted in each unit holder having a net asset value of $210 per unit
on January 1, 1997. No distributions were declared in 1998.
(6) OFF-BALANCE-SHEET RISK
In the normal course of business, the Partnership enters into
transactions in financial instruments with off-balance-sheet risk. These
financial instruments include financial futures contracts and option
contracts. Futures contracts provide for the delayed delivery of
commodities, which the seller agrees to make delivery at a specified
future date, at a specified price. Futures contracts and options on such
contracts are held for trading and arbitrage purposes. The notional
value of these contracts reflect the extent of involvement the
Partnership has in particular types of contracts. Risk arises from
movements in commodities' values. At December 31, 1998, the underlying
notional value of open contract commitments were long $(18,214,281) and
short $(13,052,700).
The Partnership trades in a variety of futures and options financial
instruments, and all open positions are reported at fair value. Trading
loss, including realized and unrealized gains and losses, from financial
futures contracts and options transactions for the year ended December
31, 1998 was $(941,528). The average fair value of open commodity
financial instruments, and the year-end market value of open commodities
are as follows:
<TABLE>
<CAPTION>
AVERAGE FAIR MARKET FAIR
VALUE OF OPEN OF OPEN POSITIONS AT
POSITIONS DURING 1998 DECEMBER 31, 1998
------------------------ ----------------------
<S> <C> <C>
Assets (Long Positions) $ (254,613) (423,129)
Liabilities (Short Positions) 126,446 8,305
</TABLE>
MARKET RISK
Derivative instruments involve varying degrees of off-balance sheet
market risks, and changes in the level or volatility of interest rates,
foreign currency exchange rates or market values of the underlying
financial instruments or commodities underlying such derivative
instruments frequently result in changes in the Partnership's unrealized
profit (loss) on such derivative instruments as reflected in the
Statements of Financial Condition. The Partnership's exposure to market
risk is influenced by a number of factors, including the relationships
among the derivative instruments held by the Partnership as well as the
volatility and liquidity in the markets in which the financial
instruments are traded.
CREDIT RISK
F-14
<PAGE> 57
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter
transactions (non-exchange-traded), because exchanges typically (but not
universally) provide clearinghouse arrangements in which the collective
credit (in some cases limited in amount, in some cases not) of the
members of the exchange is pledged to support the financial integrity of
the exchange.
The fair value amounts in the above tables represent the extent of the
Partnership's market exposure in the particular class of derivative
instrument listed, but not the credit risk associated with counterparty
nonperformance. The credit risk associated with these instruments from
counterparty nonperformance is the net unrealized gain, if any, included
on the Statement of Financial Condition.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosure About
Fair Value of Financial Instruments, extends existing fair value
disclosure practices for some instruments by requiring all entities to
disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of financial
condition, for which it is practicable to estimate fair value. If
estimating fair value is not practicable, this Statement requires
disclosures of descriptive information pertinent to estimating the value
of a financial instrument. At December 31, 1998, substantially all of
the Partnership's financial instruments, as defined in the Statement,
are carried at fair value.
F-15
<PAGE> 58
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
(8) SEGMENT INFORMATION
The Fund's principal activity is speculative trading of
agricultural commodities futures contracts and other commodity
interests. The Fund has five reportable segments: soybean, cattle, grain
spread, corn and cotton. The accounting policies of the segments are the
same as those described in the summary of significant accounting
policies. All other includes commodities interests traded in coffee,
Deutsche Marks, S&P Petroleum, S&P Futures and Wheat.
The results of operations and selected financial information by
commodity trading segment for the three years ended December 31, 1998,
1997 and 1996 are presented below:
<TABLE>
<CAPTION>
GRAIN
SOYBEAN CATTLE SPREAD CORN COTTON OTHER TOTAL
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Results of operations:
Net gains (losses) from closed positions $(794,729) 121,714 391,865 (328,887) (590,829) (57,937) (1,258,803)
Change in unrealized losses on
open positions (83,434) (343,915) 1,000 (70,000) (296) 2,744 (493,901)
Change in unrealized gains (losses) on
open position contracts 51,720 0 0 (17,500) 6,875 0 41,095
--------- -------- ------- -------- -------- ------- -----------
Net gains (losses) on trading activities $(826,443) (222,201) 392,865 (416,387) (584,250) (55,193) (1,711,609)
========= ======== ======= ======== ======== =======
Investment income - interest 332,240
Management fees (259,437)
Incentive fees (14,116)
Professional and administrative expenses (72,000)
-----------
Net earnings (loss) $(1,724,922)
===========
Selected financial information:
Unrealized gains (losses) on open
futures contracts $ (49,120) (414,360) 0 0 0 (3,219) (466,699)
Open option contracts, at market 45,000 0 0 0 6,875 0 51,875
--------- -------- ------- -------- -------- ------ -----------
$ (4,120) (414,360) 0 0 6,875 (3,219) (414,824)
========= ======== ======= ======== ======== ====== ===========
Other unallocated amounts 5,918,916
-----------
Total assets $ 5,504,092
===========
</TABLE>
F-16
<PAGE> 59
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
GRAIN
SOYBEAN CATTLE SPREAD CORN COTTON OTHER TOTAL
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Results of operations:
Net gains (losses) from closed positions $ 25,735 (133,558) 266,214 (434,826) (303,930) 214,146 (366,219)
Change in unrealized losses on
open positions 43,194 (144,975) (1,000) (160,875) 36,696 68,130 (158,830)
Change in unrealized gains (losses) on
open position contracts (6,720) 0 0 17,500 0 0 10,780
--------- -------- ------- -------- -------- ------- -----------
Net gains (losses) on trading activities $ 62,209 (278,533) 265,214 (578,201) (267,234) 282,276 (514,269)
========= ======== ======= ======== ======== =======
Investment income - interest 294,507
Management fees (223,279)
Incentive fees (3,091)
Professional and administrative expenses (58,403)
-----------
Net earnings (loss) $ (504,535)
===========
Selected financial information:
Unrealized gains (losses) on open
futures contracts $ 34,314 (70,445) (1,000) 70,000 296 (5,963) 27,202
Open option contracts, at market (6,720) 0 0 17,500 0 0 10,780
--------- ------- ------- ------- -------- --------- -----------
$ 27,594 (70,445) (1,000) 87,500 296 (5,963) 37,982
========= ======= ======= ======= ======== =========
Other unallocated amounts 6,609,663
-----------
Total assets $ 6,647,645
===========
</TABLE>
F-17
<PAGE> 60
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
GRAIN
SOYBEAN CATTLE SPREAD CORN COTTON OTHER TOTAL
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
Results of operations:
Net gains (losses) from closed positions $(158,391) 298,926 (10,178) 2,268,338 260,747 233,242 2,892,684
Change in unrealized losses on
open positions (37,066) 97,610 0 62,125 (36,395) (132,268) (45,994)
Change in unrealized gains (losses) on
open position contracts 0 0 0 0 (1,840) 0 (1,840)
--------- --------- --------- --------- --------- --------- ----------
Net gains (losses) on trading activities $(195,457) 396,536 (10,178) 2,330,463 222,512 100,974 2,844,850
========= ========= ========= ========= ========= =========
Investment income - interest 187,206
Management fees (151,969)
Incentive fees (384,117)
Professional and administrative expenses (82,026)
----------
Net earnings (loss) 2,413,944
==========
Selected financial information:
Unrealized gains (losses) on open
futures contracts $ (8,880) 74,530 0 230,875 (36,400) (74,093) 186,032
Open option contracts, at market 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- ----------
$ (8,880) 74,530 0 230,875 (36,400) (74,093) 186,032
========= ========= ========= ========= ========= ========= ==========
Other unallocated amounts 4,709,055
----------
Total assets $4,895,087
==========
</TABLE>
F-18
<PAGE> 61
SCHEDULE 1
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
PAR OR
NUMBER OF FAIR
DESCRIPTION CONTRACTS VALUE
----------- ---------- ------------
<S> <C> <C>
United States Treasury Bill due January 28, 1999 3,350,000 $ 3,339,215
United States Treasury Bill due February 11, 1999 400,000 397,970
United States Treasury Bill due March 18, 1999 1,600,000 1,585,284
------------
5,322,469
------------
Net cash balances from futures trading 452,502
------------
Open options contracts in futures trading accounts:
February 9 Live Cattle (880)
April 9 Live Cattle (233,010)
June 9 Live Cattle (95,580)
August 9 Live Cattle (72,290)
April 9 Lean Hogs (11,000)
June 9 Lean Hogs (1,600)
March 9 Soybean Meal 28,000
July 9 Soybean Meal (93,800)
March 9 Soybean Oil (133,620)
May 9 Soybean Oil 99,000
July 9 Soybean Oil 51,300
March 9 U S T Bond Future (7,344)
IOM S&P Index 4,125
March 9 Cotton Options 6,000
March 9 Cotton Options 3,000
March 9 Cotton Options (1,500)
March 9 Cotton Options (625)
March 9 Soybean - CBT Option 22,500
March 9 Soybean - CBT Option 22,500
------------
(414,824)
------------
Total equity in futures trading accounts 37,678
------------
Total investments $ 5,360,147
============
</TABLE>
See accompanying independent accountant's report.
F-19
<PAGE> 62
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Financial Statements
For the Three Months Ended September 30, 1999
Prepared by
Padawer & Associates
Certified Public Accountants
752 East Brookhaven Circle, Suite 100
Memphis, Tennessee 38117
F-20
<PAGE> 63
PADAWER & ASSOCIATES
CERTIFIED PUBLIC ACCOUNTANTS
752 EAST BROOKHAVEN CIRCLE, SUITE 100
MEMPHIS, TENNESSEE 38117
(901) 683-9121
CERES FUND, L.P.
MEMPHIS, TENNESSEE
We have compiled the accompanying balance sheet of CERES FUND, L.P., a
Tennessee Limited partnership, as of September 30, 1999, and the related
statements of operations and partners' capital for the nine months then ended,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures and
the statement of cash flows required by generally accepted accounting
principles. if the omitted disclosures and statement of cash flows were
included in the financial statements, they might influence the user's
conclusions about the Partnership's financial position, results of operations,
and cash flows. Accordingly, these financial statements are not designed for
those who are not informed about such matters.
The accompanying financial statements do not include a provision or
liability for federal income taxes because the partners are taxed individually
on their share of partnership earnings.
PADAWER & ASSOCIATES
CERTIFIED PUBLIC ACCOUNTANTS
MEMPHIS, TN
OCTOBER 26, 1999
F - 21
<PAGE> 64
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Balance Sheet
September 30, 1999
<TABLE>
<S> <C> <C>
ASSETS
Cash $ 23,174.99
U.S. Obligations at cost plus accrued interest 5,318,552.22
Equity in commodity futures trading account:
Cash 29,895.05
Unrealized gain (loss) on open futures contracts 27,222.50
Market value of open option contracts 26,656.25
Interest Receivable 1,038.45
$ 5,426,539.46
==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued management fees $ 16,994.00
Other accrued expenses 20,348.46
Amounts received for future subscriptions 122,897.00
--------------
Due to Limited Partners 160,239.46
Partners' capital:
General Partners $ 283,263.00
Limited Partners 4,675,972.00
--------------
Partner capital before current year income (loss) 4,959,235.00
Profit (loss) for period:
General Partners 24,825.00
Limited Partners 282,240.00
--------------
Profit (loss) for period 307,065.00
--------------
5,266,300.00
--------------
Total Partners' Capital $ 5,426,539.46
==============
</TABLE>
SEE ACCOUNTANT'S COMPILATION REPORT
F-22
<PAGE> 65
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statement of Operations and Partners' Capital
The Three Months Ended September 30, 1999
<TABLE>
<CAPTION>
CURRENT
MONTH YEAR TO DATE
<S> <C> <C>
Income:
Net gains (losses) on trading of commodity futures contracts:
Realized gain (loss) on closed positions $ (71,951.00) 110,488.00
Change in unrealized gain (loss) on open positions 42,315.00 497,778.00
Interest 20,564.00 186,845.00
------------- -------------
(9,072.00) 795,111.00
------------- -------------
Expenses:
Broker's commission 37,375.00 261,643.00
Exchange, clearing fees and NFA chg 1,542.00 11,963.00
Management fee allocations 16,994.00 160,440.00
Professional and administrative 6,000.00 54,000.00
------------- -------------
61,911.00 488,046.00
------------- -------------
$ (70,983.00) 307,065.00
=============
Partners' Capital at Beginning of Year 5,285,588.00
Capital Contributions 36,742.00
Capital Withdrawals (363,095.00)
-------------
Partners' Capital at End of Period $5,266,300.00
=============
</TABLE>
SEE ACCOUNTANT'S COMPILATION REPORT
F-23
<PAGE> 66
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell Corporation)
Balance Sheets
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
F-24
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Randell Commodity Corporation:
We have audited the accompanying balance sheets of Randell Commodity
Corporation (a wholly-owned subsidiary of Randell Corporation) as of December
31, 1998 and 1997. These balance sheets are the responsibility of the Company's
management. Our responsibility is to express an opinion on these balance sheets
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audits of the balance sheets
provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Randell Commodity Corporation as
of December 31, 1998 and 1997, in conformity with generally accepted accounting
principles.
KPMG LLP
February 12, 1999
F-25
<PAGE> 68
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell Corporation)
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 534 --
Accounts receivable - affiliate 18,895 21,595
Due from related party 197,136 244,610
Commodity futures trading account 153,431 154,004
------------- -------------
Total current assets 369,996 420,209
Investment in partnerships (note 2) 65,079 21,584
Property and equipment, net (notes 3 and 4) 406,200 412,864
------------- -------------
Total assets $ 841,275 854,657
============= =============
Liabilities and Stockholder's Equity
Current liabilities:
Cash overdraft -- 230
Accounts payable and accrued expenses 37,636 32,811
Current installments of long-term debt (note 4) 47,145 49,632
Due to affiliate 4,475 4,475
------------- -------------
Total current liabilities 89,256 87,148
Long-term debt, excluding current
installments (note 4) 147,334 194,305
------------- -------------
Total liabilities 236,590 281,453
------------- -------------
Stockholder's equity:
Common stock, $1 par value, 100,000 shares
authorized, 1,033 shares issued and outstanding 1,033 1,033
Additional paid-in capital 1,227,041 1,227,041
Accumulated deficit (623,389) (654,870)
------------- -------------
Total stockholder's equity 604,685 573,204
------------- -------------
Total liabilities and stockholder's equity $ 841,275 854,657
============= =============
</TABLE>
See accompanying notes to balance sheets.
F-26
<PAGE> 69
(1) SUMMARY OF SIGNIFICANT POLICIES
Randell Commodity Corporation (the Company) is a wholly-owned subsidiary
of Randell Corporation. The Company is a registered commodity trading
adviser and commodity pool operator. The Company also owns and operates
a ranch located in Mississippi.
The following sets forth the Company's significant accounting policies.
(A) COMMODITY FUTURES TRADING ACCOUNT
The Company's commodities futures trading account is reported at
fair value. These funds are invested in a customer's segregated
account under the Commodities Exchange Act.
(B) INVESTMENT IN PARTNERSHIPS
The Company is the general partner in three commodity
partnerships. (RanDelta Capital Partners, L.P., The Pyramid Fund,
L.P., and Memphis Futures Fund I, L.P.) RanDelta Capital
Partners, L.P. is the financial general partner of two commodity
pools at December 31, 1998. (CERES Fund, L.P. and Delta Capital
Income and Futures Fund, L.P.) The Company accounts for its
interest in these partnerships using the equity method of
accounting. In addition to serving as general partner, the
Company receives management fees from these partnerships.
(C) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over
their estimated lives using straight-line and accelerated
methods.
(D) INCOME TAXES
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(E) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-27
<PAGE> 70
(F) RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, SFAS No. 133, " Accounting for Derivative
Instruments and Hedging Activity," was issued effective for years
beginning after June 15, 1999. This new accounting statement is
not expected to have a material impact on the Partnership's
consolidated financial statements. The Company will adopt this
accounting standard in 2000.
(G) YEAR 2000
The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium
(year 2000) approaches. The year 2000 problem is pervasive and
complex as virtually every computer operation will be affected in
some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate
erroneous data or cause a system to fail.
Management has assessed the impact of Year 2000 issues on the
Company's computer systems and applications, developed a
remediation plan, and determined that its impact will be
immaterial. Conversion and implementation activities for mission
critical systems are in process and management expects
implementation and testing to be completed by the middle of 1999.
The Company is recording costs associated with these systems
changes as the costs are incurred. Estimates of the completion
date for implementation and testing of mission critical systems
are based on assumptions which management believes are reasonable
and appropriate.
F-28
<PAGE> 71
(2) INVESTMENT IN COMMODITY PARTNERSHIPS
The following is a summary of the Company's investment in partnerships
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
The Pyramid Fund, L.P. $ 3,570 5,451
RanDelta Capital Partners, L.P. 13,298 13,993
Ceres Fund, L.P. 1,624 2,140
------- ------
$18,492 21,584
======= ======
</TABLE>
The following summarizes the aggregate assets and liabilities of the
partnerships for which the Company serves as a general partner at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Assets $24,599,948 8,327,220
Liabilities 439,449 173,899
----------- ---------
$24,160,499 8,153,321
=========== =========
</TABLE>
As a general partner, the Company is contingently liable for liabilities
of the partnerships.
(3) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Farm land $ 351,972 351,972
Farm buildings and improvements 89,115 89,115
Farm machinery and equipment 125,071 109,672
Trucks and autos 53,182 53,182
Computer and office equipment 55,070 55,070
--------- --------
674,410 659,011
Less accumulated depreciation (268,210) (246,147)
--------- --------
$ 406,200 412,864
========= ========
</TABLE>
F-29
<PAGE> 72
(4) LONG-TERM DEBT
The following is a summary of long-term debt at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Mortgage note payable in monthly installments of
$3,425, including interest at 9%, with a maturity
date of October 2000, secured by real property $163,934 197,348
9.75% note payable due in monthly installments of
$714 through August 1999, secured by an
automobile 2,109 10,050
8.25% note payable due in monthly installments of
$573 through February 1998, secured by an
automobile 0 573
10.40% note payable due in yearly installments of
$11,444 through March 2001, secured by farm
equipment 28,436 35,966
-------- -------
194,479 243,937
Less current installments 47,145 49,632
======== =======
$147,334 194,305
======== =======
</TABLE>
Maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1999 $ 47,145
2000 49,347
2001 54,309
2002 43,678
========
Total $194,479
========
</TABLE>
(5) OFF-BALANCE-SHEET RISK
In the normal course of business, the Company enters into transactions
in financial instruments with off-balance-sheet risk. These financial
instruments include financial futures contracts and option contracts.
Futures contracts provide for the delayed delivery of commodities, which
the seller agrees to make delivery at a specified future date, at a
specified price. Futures contracts and options on such contracts are
held for trading and arbitrage purposes. The notional value of these
contracts reflects the extent of involvement the Company has in
particular types of contracts. Risk arises from movements in
commodities' values. At December 31, 1998, the underlying notional value
of open contract commitments were long $0 and short ($24,380).
F-30
<PAGE> 73
The Company trades in a variety of futures and options financial
instruments, and all open positions are reported at market. The average
market value of open commodity financial instruments, and the year-end
market value of open commodities are as follows:
<TABLE>
<CAPTION>
AVERAGE MARKET VALUE MARKET VALUE
OF OPEN POSITIONS OF OPEN POSITIONS AT
DURING 1998 DECEMBER 31, 1998
-------------------- --------------------
<S> <C> <C>
Assets(Long positions) $(820) --
Liabilities (Short positions) 177 (500)
</TABLE>
(6) RELATED PARTY TRANSACTIONS
At December 31, 1998 and 1997, the Company was due approximately
$247,000 and $245,000, respectively, from Randell Corporation. At
December 31, 1998 and 1997 the Company, as general partner of CERES Fund
L.P. (the Fund), was due approximately $19,000 and $22,000,
respectively, from the Fund.
F-31
<PAGE> 74
RANDELTA CAPITAL PARTNERS, L.P.
Balance Sheets
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
F-32
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
The Partners
RanDelta Capital Partners, L.P.:
We have audited the accompanying balance sheets of RanDelta Capital Partners,
L.P. as of December 31, 1998 and 1997. These balance sheets are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these balance sheets based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audits of the balance sheets
provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of RanDelta Capital Partners, L.P. as
of December 31, 1998 and 1997, in conformity with generally accepted accounting
principles.
KPMG LLP
February 12, 1999
F-33
<PAGE> 76
RANDELTA CAPITAL PARTNERS, L.P.
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 25,135 7,861
Fees receivable -- 831
Due from affiliates 32,187 33,975
----------- ----------
Total current assets 57,322 42,667
Investment in partnerships (note 3) 484,988 397,328
----------- ----------
$ 542,310 439,995
=========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities - distribution payable $ 823 823
----------- ----------
Partners' equity:
General partner 13,298 13,993
Limited partners (note 2) 1,278,189 1,175,179
----------- ----------
1,291,487 1,189,172
Less: note receivable (note 2) (750,000) (750,000)
----------- ----------
Total partners' equity 541,487 439,172
----------- ----------
Total liabilities and partners' equity $ 542,310 439,995
=========== ==========
</TABLE>
See accompanying notes to balance sheets.
F-34
<PAGE> 77
RANDELTA CAPITAL PARTNERS, L.P.
Notes to Balance Sheets
December 31, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
RanDelta Capital Partners, L.P. (RanDelta) is a Tennessee limited
partnership organized on September 19, 1990. Randell Commodity
Corporation is the general partner of RanDelta. The partnership
agreement requires that the net income of the partnership be
allocated on a pro rata basis to the limited and general partners
based on their capital contributions.
RanDelta was formed to serve as the financial general partner of
CERES Fund, L.P. (CERES), a limited partnership involved in
speculative commodities and futures trading, which commenced
operations on December 1, 1991. RanDelta also serves as the
financial general partner of Delta Capital Income and Futures
Fund, L.P. (Delta Capital), a limited partnership involved in
speculative futures trading, which commenced operations on
December 15, 1998.
(B) INCOME TAXES
No provision for income taxes has been made in the accompanying
balance sheets since, as a partnership, income and losses for tax
purposes are allocated to the partners for inclusion in their
respective tax returns.
(C) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(D) RECLASSIFICATION
Certain 1997 amounts have been reclassified to conform to 1998
presentation.
F-35
<PAGE> 78
RANDELTA CAPITAL PARTNERS, L.P.
Notes to Balance Sheets
December 31, 1998 and 1997
(E) YEAR 2000
The Partnership is addressing the issues associated with the
programming code in existing computer systems as the millennium
(year 2000) approaches. The year 2000 problem is pervasive and
complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate
erroneous data or cause a system to fail. Management has assessed
the impact of Year 2000 issues on the Partnership's computer
systems and applications, developed a remediation plan, and
determined the impact will be immaterial. Conversion and
implementation activities for mission critical systems are in
process and management expects implementation and testing to be
completed by the middle of 1999. The Partnership is recording
costs associated with these systems changes as the costs are
incurred. Estimates of the completion date for implementation and
testing of mission critical systems are based on assumptions which
management believes are reasonable and appropriate.
(2) NOTE RECEIVABLE
On November 13, 1990, RanDelta entered into an agreement with a
limited partner whereby the limited partner exchanged, at par, an
undivided 68.1818% interest in a third party note receivable for a
limited partnership interest in RanDelta. RanDelta and the limited
partner are to share in principal payments on the loan on the basis of
their respective interests. The note is payable on demand, bears
interest at the prime rate, and is unsecured. RanDelta is not entitled
to receive any portion of the interest due under the note. The
borrower is a related party to the limited partner. RanDelta's
interest in the note receivable is presented in the accompanying
balance sheet as a contra to partners' equity.
(3) INVESTMENT IN PARTNERSHIP
RanDelta accounts for its interest in CERES and Delta Capital using
the equity method of accounting. In addition to serving as general
partner, RanDelta receives incentive fees from
F-36
<PAGE> 79
RANDELTA CAPITAL PARTNERS, L.P.
Notes to Balance Sheets
December 31, 1998 and 1997
CERES. Fees receivable from CERES at December 31, 1997 totaled $831.
At December 31, 1998 no amounts were due from CERES or Delta Capital.
Aggregate assets and liabilities for CERES were $5,504,092 and
$218,504, respectively, at December 31, 1998 and $6,647,645 and
$163,604, respectively, at December 31, 1997. Aggregate assets and
liabilities for Delta Capital were $17,172,678 and $3,500,
respectively, at December 31, 1998.
F-37
<PAGE> 80
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
CERES FUND, L.P.
100,000
UNITS OF LIMITED PARTNERSHIP INTEREST
THIS IS A SPECULATIVE, LEVERAGED INVESTMENT THAT INVOLVES THE RISK OF LOSS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SEE "THE RISKS YOU FACE" BEGINNING AT PAGE 4 IN PART ONE.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF
ADDITIONAL INFORMATION.
THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN IMPORTANT INFORMATION.
RANDELL COMMODITY CORPORATION
MANAGING GENERAL PARTNER
September 30, 1999
<PAGE> 81
TABLE OF CONTENTS
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
COMMODITY FUTURES MARKETS..................................................................................... 1
THE PARTNERSHIP AGREEMENT..................................................................................... 5
PURCHASES BY EMPLOYEE BENEFIT PLANS........................................................................... 9
GLOSSARY OF CERTAIN TERMS AND DEFINITIONS..................................................................... 11
</TABLE>
Exhibit A - Agreement of Limited Partnership
Exhibit B - Form of Request for Redemption
Exhibit C - Subscription Documents (included under separate cover)
ii
<PAGE> 82
COMMODITY FUTURES MARKETS
COMMODITY FUTURES CONTRACTS
GENERAL. Commodity futures contracts are standardized contracts made
on commodity exchanges. They provide for the future delivery of specified
quantities of various agricultural commodities, industrial commodities,
currencies, financial instruments or metals at a specified date, time and
place. The contractual obligations may be satisfied either by taking or making
physical delivery of an approved grade of the commodity or by making an
offsetting sale or purchase of an equivalent, but opposite, commodity futures
contract on the same exchange prior to the designated date of delivery. As an
example of an offsetting transaction in which the physical commodity is not
delivered, the contractual obligations arising from the sale of one contract of
March 1997 wheat on a commodity exchange may be fulfilled at any time before
delivery of the commodity is required by the purchase of one contract of March
1997 wheat on the same exchange. In such instance the difference between the
price at which the futures contract was sold and the price paid for the
offsetting purchase, after allowance for the brokerage commission, represents
the profit or loss to the trader. Certain futures contracts such as those for
stock or other financial or economic indices approved by the CFTC settle in
cash rather than on delivery of any physical commodity.
COMMODITY FUTURES PRICES. Commodity futures prices are highly volatile
and are influenced by:
- changing supply and demand relationships,
- governmental, agricultural, commercial and trade programs and
policies,
- national and international political and economic events,
- weather and climate conditions,
- insects and plant disease, and
- purchases by foreign countries.
Stock index futures prices are highly volatile and are influenced by factors
such as:
- interest rates,
- currency exchange rates,
- the relationship of stock prices to dividends,
- price earnings ratios,
- the supply of purchasable stock relative to available cash,
- program trading,
- governmental activities and regulations,
- political and economic events,
- prevailing psychological characteristics of the market place,
and
- the trading policies and decisions of institutions,
individual investors and other mutual fund and pool operators
and trading advisors.
HEDGING AND SPECULATING. Two broad classifications of persons who
trade in commodity futures are "hedgers" and "speculators." Commercial
interests, including farmers, that market or process commodities, use the
futures markets primarily for hedging. Hedging is a protective procedure
designed to minimize losses that may occur because of price fluctuations.
Commodity markets enable the hedger to shift the risk of price fluctuations to
the speculator. The usual objective of the hedger is to protect the profit that
he expects to earn from his farming, merchandising or processing operations,
rather than to profit from his futures trading.
The speculator, unlike the hedger, generally expects neither to
deliver nor receive the physical commodity. Instead, the speculator risks his
capital with the hope of profiting from price fluctuations in commodity futures
contracts. The speculator is, in effect, the risk bearer who assumes the risks
that the hedger seeks to avoid. Speculators rarely take delivery of the cash
commodity but usually close out their futures positions by entering into
offsetting purchases or sales of futures contracts. Because the speculator may
take either long or short positions in the commodity futures market, it is
possible for him to make profits or incur losses regardless of the direction of
price trends. All trades made by the Partnership will be speculative because
the Partnership will not own any underlying stocks upon which the stock price
index, futures and options are based.
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FORWARD TRADING
SPOT VS. FORWARD CONTRACTS. Two additional categories of commodity
transactions other than futures contracts are "spot" contracts and "forward"
contracts. Both of these are varieties of cash commodity transactions because
they relate to the purchase and sale of specific physical commodities and may
differ from each other with respect to quantity, payment, grade, mode of
shipment, penalties, risk of loss and the like. The terms of certain forward
contracts have become more standardized and may, in lieu of requiring actual
delivery and acceptance, provide a right of offset or cash settlement. For
example, traders may purchase or sell foreign currencies for future delivery in
the international foreign exchange market among banks, money market dealers and
brokers. The bank or other institution generally acts as a principal in such
forward contract transactions and includes its anticipated profit and cost in
the price it quotes for the contract. Such forward contracts generally are not
regulated by the CFTC. Although United States banks, which are major
participants in the forward market, are regulated in various ways by the
Federal Reserve Board, the Comptroller of the Currency and other federal and
state banking officials, such banking authorities do not regulate forward
trading in foreign currencies. In addition, no foreign governmental agency
regulates forward trading in foreign currencies, although exchange control
restrictions on the movement of foreign currencies are in effect in many
nations. While the United States currently does not impose restrictions on the
movement of currencies, it could choose to do so, and the imposition or
relaxation of exchange controls in a particular country could affect the market
for that country's and other countries' currencies.
CASH TRANSACTIONS
Cash commodity transactions may arise in conjunction with futures
transactions. For example, if the holder of a long contract satisfies his
obligations under the contract by taking delivery of the commodity, such holder
is said to have a cash commodity position. This cash position, if it is not to
be used or processed by the holder, may be sold through spot or forward
contracts or delivered in satisfaction of a futures contract.
OPTIONS
Pursuant to its options program, the CFTC has designated contract
markets for trading options on commodity futures, including options on U.S.
Treasury Bond futures and gold futures as well as stock index futures. The
Partnership trades only in stock index futures options established on domestic
exchanges. Our trading policies do not place a limit on the percentage of net
assets invested in options, and the Partnership may write options.
The risks involved in trading commodity options are similar to those
involved in trading futures contracts, in that options are speculative and
highly leveraged. No one can predict specific market movements of the commodity
or futures contract underlying an option. Traders buy and sell options on the
trading floor of a commodity exchange. The purchaser of an option pays a
premium and may pay commissions and other fees as well. The writer of an option
must make margin deposits and may pay commissions and other fees. Exchanges
provide the trading mechanisms by which an option once purchased can later be
sold and an option once written can later be liquidated by an offsetting
purchase. However, a liquid offset market may not exist for a particular option
at a particular time. In that case, it might not be possible to make offsetting
transactions in a particular option. Thus, in the case of an option on a
future, to realize any profit, a holder would have to exercise his option and
comply with margin requirements for the underlying futures contract. A writer
could not terminate his obligation until the option expired or he was assigned
an exercise notice.
REGULATION
CFTC. Commodity exchanges in the United States are subject to
regulation by the CFTC under the CEA. The function of the CFTC is to implement
the objectives of the CEA, preventing price manipulation and excessive
speculation and promoting orderly and efficient commodity futures markets. Such
regulation, among other things, provides that futures trading in commodities
must take place upon exchanges designated as "contract markets," and that only
exchange members may conduct trading on such exchanges. The CFTC regulates
futures trading in all commodities traded on domestic exchanges and in stock
index futures.
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<PAGE> 84
JURISDICTION AND AUTHORITY OF THE CFTC. The CFTC also has exclusive
jurisdiction to regulate the activities of "commodity trading advisors,"
"commodity pool operators," "futures commission merchants" and "introducing
brokers." Registration as a commodity pool operator requires annual filings
with the CFTC and NFA, setting forth the organization, capital structure and
identity of the management and controlling persons of the commodity pool
operator. In addition, the CFTC has authority under the CEA to require and
review books and records of, and review documents prepared by, the commodity
pool operator. The CFTC has adopted regulations that impose reporting and
record keeping requirements on commodity pool operators and commodity trading
advisors. The CFTC is authorized to suspend registration of a commodity pool
operator if the CFTC finds that the pool's trading practices tend to disrupt
orderly market conditions, or that any controlling person is subject to an
order of the CFTC denying such person trading privileges on any exchange, and
in certain other specified circumstances. The CFTC imposes similar requirements
on commodity trading advisors.
In recent years, significant regulatory responsibilities under the CEA
have been transferred from the CFTC to the NFA, which was approved in 1982 as a
"registered futures association" under the CEA. The NFA, a not-for-profit
membership corporation, now acts as a general self-regulatory body for the
commodities industry, performing a role similar to that played by the National
Association of Securities Dealers with respect to the securities industry.
Membership in the NFA is mandatory for certain commodity trading professionals,
and therefore, Randell Commodity Corporation and Refco are members of the NFA.
However, neither membership in the NFA nor registration with the CFTC of
Randell Commodity Corporation and Refco implies that the NFA or the CFTC has
passed upon or approved their qualifications to perform in accordance with the
terms and objectives of this offering.
The CEA requires all futures commission merchants to meet and maintain
specified fitness and financial requirements, account separately for all
customers' funds and positions, and maintain specified books and records on
customer transactions open to inspection by the staff of the CFTC. The CEA
authorizes the CFTC to regulate trading by futures commission merchants and
their officers and directors, permits the CFTC to require exchange action in
the event of market emergencies, and establishes an administrative procedure
under which commodity (and stock index futures) traders may institute
complaints for damages arising from alleged violations of the CEA.
DAILY LIMITS. All exchanges (but generally not foreign markets or
banks, in the case of forward contracts) normally have regulations that limit
the amount of fluctuation in commodity and stock index futures contract prices
during a single trading day. These regulations specify what are referred to as
"daily price fluctuation limits" or, more commonly, "daily limits." The daily
limits establish the maximum amount the price of a futures contract may vary
from the previous day's settlement price at the end of the trading session.
Once the daily limit has been reached in a particular commodity, no trades are
allowed at a price beyond the limit. Traders may then take or liquidate
positions in the commodity only if they are willing to trade at or within the
limit. The "daily limit" rule does not limit losses that a trader might suffer
because it may prevent the liquidation of unfavorable positions. Also,
commodity futures prices have occasionally moved to the daily limit for several
consecutive trading days, thus preventing quick liquidation of futures
positions and subjecting the commodity futures trader to substantial losses.
POSITION LIMITS. The CFTC and certain exchanges have established
limits, referred to as "position limits," on the maximum net long or net short
position that any person may hold or control in particular commodities (and
stock index futures). The CFTC has jurisdiction to establish position limits
with respect to all commodities (and stock index futures).
REGULATORY MODIFICATION AND APPROVAL. The above described regulatory
structure may be modified at any time by rules and regulations promulgated by
the CFTC, the various commodity exchanges, or by legislative changes enacted by
Congress. Furthermore, the registration with the CFTC of Randell Commodity
Corporation, Refco or any selling agent does not imply that the CFTC has
approved this offering or passed upon the qualifications of any of them to act
as described in this prospectus.
FUTURES CONTRACTS FOR COMMODITIES V. FUTURES CONTRACTS FOR STOCK PRICE INDICES
Stock index futures contracts and options thereon differ from other
commodity futures contracts in that:
- settlement is in cash, and not by delivery of an underlying
physical commodity or monetary instrument;
3
<PAGE> 85
- there is no transfer of the full value of the contract but
only charging of gains and losses to the margin accounts of
holders; and
- ultimate settlement of an option on a stock index futures
contract on the settlement day of the underlying futures
contract will result in such a credit of gain or loss, and
not the delivery of an underlying commodity or financial
instrument.
Stock index futures contracts and options thereon are similar to other
commodity futures contracts and options thereon in that they:
- are traded primarily on commodity exchanges which are
regulated by the CFTC;
- have a duration of a quarter or one month;
- have a set settlement procedure;
- are subject to limits on the number of contracts or options
which may be owned by one entity and its affiliates;
- are subject to limits on daily price movements; and
- may be sold only by regulated persons and entities.
FORWARD MARKETS
No regulatory scheme currently exists for the interbank currency
forward market, except for regulation of general banking activities and
exchange controls in the various jurisdictions where trading occurs or in which
the currency originates. While the U.S. Government does not currently impose
any restrictions on the movements of currencies, it could choose to do so, and
the imposition or relaxation of exchange controls in a particular country could
significantly affect the market for that country's and other countries'
currencies. Trading on the interbank market also exposes the Partnership to a
risk of default because the failure of a bank with which the Partnership
forward contracted would likely result in a default.
FOREIGN MARKETS
FOREIGN VS. DOMESTIC. Foreign markets, on which the Partnership may
trade, differ in certain respects from their U.S. counterparts and are not
subject to regulation by any U.S. governmental agency. Therefore, the
protections afforded by such regulations will not be available to the
Partnership when it trades on such exchanges. For example, some foreign
markets, in contrast to domestic exchanges, are "principals' markets" in which
performance is the responsibility only of the individual member with whom the
trader has entered into a commodity transaction and not of the exchange or
clearing corporation. On such exchanges, the Partnership will be subject to the
risks of non-performance by such member or the counter-party. For example, in
the past, certain members of the tin market on the London Metal Exchange, or
LME, failed to perform their obligations under outstanding tin contracts,
resulting in a prolonged suspension of trading, and ultimately, a closing of
that market and settlement of outstanding positions at an artificial price
level dictated by the LME. As a result, some commodity traders suffered
substantial losses and other substantial reductions of the profits which they
would have otherwise realized. Due to the absence of a clearinghouse system on
many foreign markets, such markets are significantly more susceptible to
disruptions (such as that which occurred on the LME's tin market) than on the
United States exchanges. On the other hand, futures contracts for the
Partnership traded on certain foreign exchanges (including LME for certain
commodities) will be registered with the International Commodity Clearing
House, Ltd., or ICCH, which performs a clearing function similar to a clearing
corporation on a domestic commodity exchange.
LONDON EXCHANGES. London exchanges do not generally have "daily
limits" on commodity price movements or speculative position limits. Minimum
margin requirements on the London exchanges (other than the LME, the Grain and
Feed Trade Association and the London Meat Futures Exchange) are established by
the ICCH for exchange members, which then may determine the margin amounts
required to their customers and the manner in which the margin requirements may
be met. On the LME, the Grain and Feed Trade Association and the London Meat
Futures Exchange, each dealer establishes the margin he will require; the
exchange itself requires no margins. Trading on the London exchanges is in
pounds sterling and U.S. Dollars. The London exchanges are not regulated by the
CFTC or any governmental agency of the U.S. or Great Britain. Trading on other
foreign markets may differ from trading on U.S. markets in a variety of ways
and may subject the Partnership to a variety of additional risks, including
special risks relating to bankruptcy, insolvency, jurisdiction and lack of
proximity of the foreign markets.
4
<PAGE> 86
MARGINS
Commodity futures contracts are customarily bought and sold on margins
which range upward from as little as one percent of the purchase price of the
contract being traded. Because of these low margins, price fluctuations
occurring in commodity (and stock index) futures markets may create profits and
losses which are greater than those normally present in other forms of
investment or speculation. Margin is the minimum amount of funds which must be
deposited by the commodity (and stock index) futures trader with his futures
commission merchant in order to initiate futures trading or to maintain his
open positions in futures contracts. A margin deposit is not a partial payment,
as it is in connection with the trading of securities. Rather, it helps assure
the trader's performance of the futures contract. Since the margin deposit is
not a partial payment of the purchase price, the trader does not pay interest
to his broker on a remaining balance. The minimum amount of margin required for
a futures contract is set by the exchange upon which such futures contract is
traded and may be modified by the exchange during the term of the contract.
Under the regulations of the Chicago Board of Trade, the Partnership may be
required to maintain margin deposits equal to 125% of the minimum margin levels
applicable to commodity futures contracts traded on that exchange. Brokerage
firms carrying accounts for traders in commodity futures contracts may increase
the amount of margin required as a matter of policy in order to afford further
protection for themselves. We do not anticipate that banks will require margin
from the Partnership with respect to bank forward contracts.
Margins with respect to transactions on certain foreign exchanges are
generally established by member firms rather than by the exchanges themselves.
However, in the case of ICCH cleared transactions, ICCH (as the independent
clearing house) requires margins and deposits from its members, and such
members generally require their clients to pay amounts at least equal to the
ICCH charges.
When the market value of a particular open futures position changes to
a point where the margin on deposit does not satisfy the maintenance margin
requirements, a margin call will be made by the trader's broker. If the margin
call is not met within a reasonable time, the broker must close out the
trader's position. The trader's broker computes margin requirements each day.
With respect to the Partnership's trading, the Partnership, and not the
investors personally, will be subject to the margin calls, if any.
As a result of the stock market declines during October 1987 and
October 1989, there is substantial debate concerning whether the authority to
set margins should continue to rest with exchanges and whether, in any such
event, such margins should be increased significantly. If changes are made to
margins requirements, it is likely that they will relate to stock index
futures, but it is possible that they could relate to other commodity interests
as well. Any such changes could have a significant impact upon the Partnership.
THE PARTNERSHIP AGREEMENT
The Partnership was formed in September, 1990. If the Partnership
accepts your subscription, you will become a limited partner in the Partnership
upon further amendment of the Partnership Agreement. The Agreement of Limited
Partnership set forth in Exhibit A will govern all aspects of the Partnership's
operations.
You should carefully review the Partnership Agreement. The following
statements summarize certain provisions of the Partnership Agreement, but do
not purport to be a complete description and are qualified in their entirety by
express reference to the Partnership Agreement.
NATURE OF THE PARTNERSHIP
The Partnership has been formed under the Tennessee Revised Uniform
Limited Partnership Act. The General Partners were advised by counsel that
units purchased and paid in this offering will be fully paid and nonassessable.
The General Partners will be liable for all obligations of the Partnership to
the extent that assets of the Partnership are insufficient to discharge the
obligations. If the assets of the Partnership and the General Partners are
insufficient to discharge the obligations of the Partnership, you will be
liable for Partnership liabilities only to the extent of your investment, plus
any profits or distributions (including any undistributed profits and
redemptions), together with interest on that sum.
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<PAGE> 87
MANAGEMENT OF PARTNERSHIP AFFAIRS
You will not participate in the management or operations of the
Partnership. Any participation by an investor in the management of the
Partnership may jeopardize the limited liability of the investor.
Responsibility for managing the Partnership is vested solely in Randell
Commodity Corporation. Responsibilities of Randell Commodity Corporation
include the following:
- determining whether the Partnership will make distributions
of profits to partners;
- administering redemptions of investors' units;
- preparing monthly, quarterly and annual reports to the
investors;
- executing various documents on behalf of the Partnership and
the investors pursuant to powers of attorney; and
- supervising the liquidation of the Partnership if an event
causing termination of the Partnership occurs.
The Partnership Agreement prohibits the General Partners from engaging in any
action which would have a material adverse effect on the Partnership except in
its reasonable business judgment.
REPORTS AND ACCOUNTING
The Partnership will keep its books on an accrual basis with a
calendar year end. The Partnership will retain for at least six years all
records necessary to determine the investors' suitability. The investors have
the right at all times during reasonable business hours to have access to, and
copies mailed of (at the expense of the investor), the Partnership's books and
records (including a list of the names and addresses of all partners and the
number of units owned). The financial statements of the Partnership will be
audited at least annually at Partnership expense by independent public
accountants designated by Randell Commodity Corporation, and the Partnership
will furnish you with an annual report, certified by an independent certified
public accountant, containing all information the CFTC requires. Presently, the
CFTC requires that the Partnership provide the annual report not later than 90
days after the end of each fiscal year. In addition, Randell Commodity
Corporation will report monthly to the investors the:
- average net asset value per unit,
- brokerage commissions,
- management and incentive allocations,
- value of each individual investor's units, and
- administrative expenses incurred by the Partnership during
the month.
The Partnership will provide you with tax information by March 15 each year.
Randell Commodity Corporation will notify you within 7 business days from the
date of any:
- material change related to the brokerage commissions paid by
the Partnership;
- material change in any contract with a trading advisor,
including any change in trading advisors; or
- modification in connection with the method of calculating any
incentive fee.
Any such notice will include a description of any material effect the changes
may have on the interests of the investors, the investors' voting rights and
their redemption rights under the Partnership Agreement.
ADDITIONAL INVESTORS
Since the completion of the initial offering in which investors
purchased 13,471.6805 units, the Partnership has continued to offer and sell
units in this offering. Investors may purchase units at the Partnership's
current average net asset value per unit plus 4%. After 100,000 units are sold,
Randell Commodity Corporation may increase the number of units to 500,000 and
make additional public or private offerings of units. The net proceeds to the
Partnership of any additional sales, however, will in no event be less than the
average net asset value per unit at the time of sale. Randell Commodity
Corporation may, in addition, issue units in series. Randell, and not the
Partnership, will bear, or cause others to bear, all expenses related to the
offering or any additional offering. No
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<PAGE> 88
investor will have any preemptive, preferential or other rights with respect to
the issuance or sale of any additional units. Randell may admit additional
investors in its sole discretion.
DISSOLUTION AND LIQUIDATION
DISSOLUTION. The Partnership will be dissolved upon the happening of
any of the following events:
- the expiration of the term of the Partnership on December 31,
2020;
- the affirmative vote of a simple majority in interest of the
investors;
- the failure of any person or corporation to qualify as a
successor General Partner within ninety days after the last
remaining General Partner ceases to be a General Partner;
- the occurrence of an event which makes it unlawful for the
business, as conducted by the Partnership or the General
Partners, to be continued;
- the disposition of all or substantially all of the property
of the Partnership; or
- the occurrence of any other event which, under the laws of
the State of Tennessee, would cause the Partnership's
dissolution.
On dissolution resulting from the withdrawal, bankruptcy, dissolution,
incapacity or death of the last remaining General Partner, the investors may,
by a unanimous vote within 90 days of dissolution, elect a successor General
Partner to continue the business of the Partnership. The investors, however,
may not be able to find or agree upon a new General Partner.
REMOVAL OF GENERAL PARTNERS. The investors may elect by a simple
majority vote to remove any General Partner in accordance with the Partnership
Agreement. The Partnership Agreement provides that if there is no remaining
General Partner, a new General Partner must be elected by a majority in
interest of the units (or such higher percentage as required under Tennessee
law).
LIQUIDATION. Upon dissolution of the Partnership, the affairs of the
Partnership will be wound up and its assets distributed, as provided in the
Partnership Agreement. We urge you to study the Partnership Agreement in detail
for information regarding the accounting upon dissolution, and the application
of the cash proceeds of the Partnership upon liquidation. The Partnership
Agreement provides that in the event of dissolution or liquidation, after the
payment of creditors and the establishment of reserves, the partners will
receive cash proceeds equal to their respective capital accounts (or pro rata
to their capital accounts if cash proceeds are less than the partners'
aggregate capital accounts) and the balance, if any, will be distributed to the
investors and General Partners in accordance with their respective interests.
AMENDMENTS, MEETINGS, VOTING AND REMOVAL
AMENDMENTS. The General Partners may amend the Partnership Agreement
without notice to, or consent of, the investors, if the amendment does not have
a material effect upon the investors or the Partnership. Investors holding a
simple majority in interest of the units may amend the Partnership Agreement.
However, no amendment may be made which will change the Partnership to a
general partnership, change the Partnership interest of any partner, or
increase the liabilities or obligations of any partner. Notwithstanding this
limitation, the General Partners, without the consent of, but with notice to,
the investors may amend the Partnership Agreement to the minimum extent
necessary to comply with any amendment to Internal Revenue Code Sections 704 or
7704, the regulations under those sections or any judicial or administrative
interpretation of those sections.
MEETINGS. Meetings of the investors may be called by the General
Partners or by investors holding more than 10% of the voting power of the
investors by delivering written notice to Randell Commodity Corporation. The
meetings will be at a time and place fixed by Randell but must be held not less
than 30 nor more than 60 days after the call of the meeting.
VOTING. The voting power of an investor on any matter will be equal to
the number of units owned by him. Action may be taken by written consent
without a meeting of the Partnership upon written consent of investors holding
the same number of units as would have been required if an actual meeting
occurred. For purposes of obtaining written consent, Randell Commodity
Corporation may require a written response by an investor within
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not less than 30 days. If the investor does not respond within the stated time
period, the investor will be deemed to have abstained from the matter specified
in the written consent.
REMOVAL OF GENERAL PARTNERS. Any general partner may be removed by a
simple majority in interest of all the investors if:
- a successor general partner is elected would (where removal
would cause there to be no remaining general partner);
- the removal of the general partner would not result in the
Partnership's ceasing to be treated as a partnership for
purposes of the applicable provisions of the internal revenue
code; and
- the successor general partner assumes the removed general
partner's obligations of the Partnership for claims arising
prior to removal and agrees to indemnify the removed general
partner for such claims in a form satisfactory to the removed
general partner.
The removed General Partner shall be entitled to redemption of its general
partnership interest at its unit-equivalent basis.
INDEMNIFICATION
The General Partners and certain of their affiliates, directors and
controlling persons may not be liable to the Partnership or any investor for
errors in judgment or other acts or omissions not amounting to misconduct or
negligence, as a consequence of the indemnification and exculpatory provisions
described in the following paragraph. Purchasers of units may have more limited
rights of action because of these provisions than they would have without the
provisions.
The General Partners and their affiliates are not liable to the
Partnership or to any investor for any loss suffered by the Partnership which
arises out of any action or inaction of the General Partners or their
affiliates if the General Partners or their affiliates, in good faith,
determined that such course of conduct was in the best interest of the
Partnership and such course of conduct did not constitute negligence or
misconduct of the General Partners or their affiliates. The Partnership has
agreed to indemnify the General Partners and certain of their affiliates,
officers, directors and controlling persons against claims, losses or
liabilities based on their conduct relating to the Partnership, provided that
the conduct resulting in the claims, losses or liabilities for which the
General Partner seeks indemnity did not constitute negligence or misconduct or
breach of any fiduciary obligation of the Partnership, and was done in good
faith and in a manner reasonably believed to be in the best interests of the
Partnership. Affiliates of the General Partners are entitled to indemnity only
for losses resulting from claims against such affiliates due solely to their
relationship with the General Partners or for losses incurred by such
affiliates in performing the duties of the General Partners.
For purposes of the exculpation and indemnification provisions of the
Partnership Agreement, the term "affiliates" means any person performing
services on behalf of the Partnership who
- directly or indirectly controls, is controlled by, or is
under common control with the General Partners;
- owns or controls 10% or more of the outstanding voting
securities of the General Partners;
- is an officer or director of either General Partner; or
- is any company for which either of the General Partners acts
as an officer, director, partner or trustee.
The Partnership will not indemnify the General Partners or any of the
foregoing persons for any liability arising from securities law violations in
connection with the offering of the units unless the General Partners or such
persons prevail on the merits or obtain a court approved settlement which
includes court approved indemnification as described in Section 8.05(b) of the
Partnership Agreement.
Under the exculpatory provisions of the Partnership Agreement, none of
the General Partners or their affiliates will be liable to the Partnership or
to any of the partners except by reason of acts or omissions constituting bad
faith, misconduct or negligence that were not taken in good faith and in the
reasonable belief that such actions
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<PAGE> 90
were in the best interests of the Partnership. You may have a more limited
right of action then you would absent such limitations.
GENERAL
In compliance with the Statement of Policy of the North American
Securities Administrators Association, Inc. relating to the registration to
commodity pool programs under state securities or "Blue Sky" laws, the
Partnership Agreement provides that:
- the Partnership will not make loans;
- the Partnership will not give rebates or give-ups, among
other things, to any of the General Partners, the futures
commission merchant or any affiliate of the foregoing, and
will not seek to circumvent these restrictions through
reciprocal business arrangements among any of the General
Partners, the futures commission merchant or any of their
respective affiliates and the Partnership;
- any agreements between the Partnership and the General
Partners or any of their affiliates will not exceed one year
and must be terminable by the Partnership upon no more than
60 days' written notice;
- the funds of the Partnership will not be commingled with the
funds of any other person (deposit of assets with a futures
commission merchant, clearing house or forward dealer does
not constitute commingling for these purposes);
- no person who shares or participates in any commodity
brokerage commissions paid by the Partnership may receive,
directly or indirectly, any advisory, management or incentive
fees or profit-sharing allocation from the Partnership or any
joint ventures, partnerships, or similar arrangements in
which the Partnership participates;
- no sponsors may pay or award any commissions or other
compensation to any person engaged to sell units or give
investment advice to a potential participant (provided,
however, that this clause shall not prohibit the payment to a
registered broker/dealer or other properly licensed person of
normal sales commissions for selling units); and
- no affiliate of any trading advisor or manager of the
Partnership is permitted to participate, directly or
indirectly, in any commodity brokerage commissions paid by
the Partnership.
PURCHASES BY EMPLOYEE BENEFIT PLANS
The purchase of units by an employee benefit plan must comply with the
provisions of the Employee Retirement Income Security Act of 1974, or ERISA, as
well as certain restrictions imposed by Section 4975 of the Internal Revenue
Code. The term "employee benefit plan" refers to any plan or account of various
types (including the related trusts) which provides for accumulation of assets
or benefits in respect of an individual's compensation. The assets or benefits
are free from federal income tax until such time as they are distributed from
the plan. Such plans include corporate pension and profit sharing plans,
"simplified employee pension plans,""KEOGH" plans for self-employed individuals
(including partners), employee welfare plans and, for purposes of this
discussion, individual retirement accounts as described in Section 408 of the
Internal Revenue Code.
In general, the person with investment discretion regarding an
employee benefit plan should consult with his or her attorney or other advisor
to determine:
- whether the investment is prudent in accordance with the
requirements of section 404(a) of ERISA;
- whether the investment satisfies the diversification
requirements of section 404(a)(1)(C) of ERISA;
- whether the investment is in accordance with the documents
and instruments covering the plan;
- whether a prohibited transaction in violation of section 406
of ERISA or section 4975 of the Internal Revenue Code will
occur;
- whether the investment provides sufficient liquidity;
- whether the investment allows for the need to value the
assets of the plan annually pursuant section 103(d)(5) of
ERISA;
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- whether all of the assets of the Partnership will be
considered as "plan assets" of the employee benefit plan,
rather than just the units; and
- whether all or any portion of the income attributable to the
units will be taxable as unrelated business taxable income.
The United States Department of Labor Regulation 2510.3-101 provides
certain rules for determining whether an investment in the Partnership by
employee benefit plans will be treated as an investment by such plans in the
underlying assets of the Partnership. If the Partnership were deemed to hold
"plan assets," the General Partners would most likely become ERISA fiduciaries
with respect to the Partnership assets. Therefore, the General Partners and the
person making the investment decision to purchase units would be
co-fiduciaries. If that occurred, the assets of the Partnership would be
subject to the prohibited transaction rules of ERISA and the Internal Revenue
Code.
Regulation 2510.3-101 states that, under ERISA, assets of an entity in
which an employee benefit plan invests are not assets of such plan if the class
of "equity" interests held by the plan are:
1. held by 100 or more investors independent of the
Partnership and of each other,
2. "freely transferable," and
3. sold to employee benefit plans as a part of an offering of
units to the public pursuant to:
(a) an effective registration statement under the
Securities Act of 1933 and subsequent registration
of the units under the Securities Act of 1934, or
(b) an effective registration statement under
Section 12(b) or 12(g) of the Securities Exchange
Act of 1934.
The General Partners believe that the units will meet the foregoing
tests. The determination of whether the units will be "freely transferable,"
however, is a subjective test under Regulation 2510.3-101. Accordingly, there
is a risk that the Partnership could be deemed to hold "plan assets" under
Regulation 2510.3-101. In response to this risk, the Partnership Agreement
permits the General Partners to compel the redemption of some or all units held
by employee benefit plans or accounts.
While the Partnership will likely be classified as a "publicly traded
partnership," recent amendments to the Internal Revenue Code eliminated certain
unfavorable tax consequences of investments made by tax-exempt entities in
"publicly traded partnerships." Accordingly, income from the Partnership's
expected activities will not be of a character that produces unrelated business
taxable income.
Units may not be purchased with the assets of an employee benefit plan
if any of the General Partners, the trading advisor or their respective
affiliates, either:
- has investment discretion regarding the investment of the
plan assets;
- has authority or responsibility to give or regularly gives
investment advice regarding the plan assets, for a fee, and
pursuant to an agreement or understanding that such advice
will serve as a primary basis for investment decisions with
respect to the plan assets and that such advice will be based
on the particular investment needs of the plan; or
- is an employer maintaining or contributing to such plan.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF INDIVIDUAL RETIREMENT
ACCOUNTS OR OTHER EMPLOYEE BENEFIT PLANS IS IN NO RESPECT A
REPRESENTATION BY THE PARTNERSHIP, THE GENERAL PARTNERS, ANY TRADING
ADVISOR, OR ANY OTHER PARTY THAT THIS INVESTMENT MEETS ALL RELEVANT
LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN
OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. THE
PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT WITH HIS ATTORNEY AS
TO THE PROPRIETY OF SUCH AN INVESTMENT IN LIGHT OF THE CIRCUMSTANCES
OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
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GLOSSARY OF CERTAIN TERMS AND DEFINITIONS
The following glossary may assist the prospective investor in
understanding the terms used in this prospectus.
Adjusted Asset Value. See the "Adjusted Asset Value and Net Asset
Value" section in Part One.
Affiliate. See the "Conflicts of Interest" section in Part One.
Associated Persons. Any person who is associated with any futures
commissions merchant, commodity pool operator, commodity trading advisor or
introductory broker or with any agent thereof as a partner, officer or
employee, in any capacity which involves solicitation or acceptance of customer
orders (other than a clerical capacity) or the supervision of any person or
persons so engaged.
Average Net Asset Value per Unit. See the "Adjusted Asset Value and
Net Asset Value" section in Part One.
Capital Contributions. The total investment in a program by a
participant or by all participants, as the case may be. See the
"Capitalization" section in Part One.
CFTC. The Commodity Futures Trading Commission.
Commission or Brokerage Commission. The fee charged by a broker for
executing a trade in a commodity account of a customer. Commissions are usually
charged on a "round-turn" basis, i.e., only upon the closing of an open
position.
Commodity. The term commodity refers to goods, wares, merchandise,
produce and in general everything that is bought and sold in commerce,
including financial instruments and foreign currencies. Out of this large
class, certain commodities, because of their wide distribution, universal
acceptance, and marketability in commercial channels, have been selected as
appropriate vehicles for trading on various national and international
exchanges located in principal marketing and commercial areas. Such commodities
are traded according to uniform, established grade standards, in convenient
predetermined lots and quantities, are fungible (allow free substitution of one
lot for another to satisfy a contract) and, with few exceptions, are storable
over periods of time.
Commodity Contract. See "Futures Contract" in this glossary.
Covered Option. A "covered" option is one in which the Seller of the
option owns the underlying commodity or futures contract at all times when such
Seller is obligated to deliver such underlying commodity or futures contract
upon the exercise of the option.
Daily Price Fluctuation Limit. The maximum permitted fluctuation
(imposed by an exchange and approved by the CFTC) in the price of a futures
contract for a given commodity or stock index that can occur on an exchange on
a given day in relation to the previous day's settlement price. Such maximum
permitted fluctuation is subject to change from time to time by the exchange.
Delivery. The process of satisfying a commodity futures contract by
transferring ownership of a specified quantity and grade of a commodity to the
purchaser thereof.
Forward Contract. A contract relating to the purchase and sale of a
physical commodity for delivery at a future date. It is distinguished from a
futures contract in that it is not traded on an exchange and it contains terms
and conditions specifically negotiated by the parties.
Futures Contract. Contracts made on or through a commodity exchange
which provide for future delivery of agricultural and industrial commodities,
foreign currencies and financial instruments, or for cash settlement in the
case of stock index futures. Such contracts are uniform for each commodity or
financial instrument and typically vary only with respect to price, delivery or
settlement time. A commodity futures contract to accept delivery (buy)
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is referred to as a "long" contract; conversely a contract to make delivery
(sell) is referred to as a "short" contract. Until a commodity futures contract
is satisfied by delivery or offset it is said to be an "open" position.
Incentive Allocation. See the "Description of Charges to the
Partnership -- General Partner - Incentive Allocation" section in Part One.
Long or Short Position. A trader is long when he has bought a cash
commodity or a futures contract, in contrast to a trader being short, which
means he has sold a cash commodity or a futures contract.
Management Allocation. See the "Description of Charges to the
Partnership -- General Partner - Management Allocation" section in Part One.
Margin. Good faith deposits with a broker to assure fulfillment of a
purchase or sale of a futures contract. Margins do not involve the payment of
interest.
Margin Call. A demand for additional funds after the initial good
faith deposit required to maintain a customer's account in compliance with the
requirements of a particular commodity exchange or of a futures commission
merchant.
Net Asset Value and Net Asset Value per Unit. See the "Adjusted Asset
Value and Net Asset Value" section in Part One.
Net Assets. See the "Adjusted Asset Value and Net Asset Value" section
in Part One.
Net New Appreciation. See the "Description of Charges to the
Partnership -- General Partner - Incentive Allocation" section in Part One.
New Trading Profits. See Net New Appreciation.
NFA. The National Futures Association.
Option or Option Contract. A contract giving the purchaser the right,
but not the obligation, to acquire or to dispose of the commodity or futures
contract underlying the option, or the Seller of an option contract the
obligation to deliver or take delivery of the commodity or futures contract
underlying the option.
Organizational and Offering Expenses. All expenses incurred by the
Partnership in connection with and in preparing the Partnership for
registration and subsequently offering and distributing it to the public,
including, but not limited to, total underwriting and brokerage discounts and
commissions (including fees of the underwriters, attorneys), expenses for
printing, engraving, mailing, salaries of employees engaged in sales
activities, charges of transfer agents, registrars, trustees, escrow holders,
depositories, experts, expenses of qualification of sale of its units under
Federal and state law, including taxes and fees, accountants' and attorneys'
fees.
Pit Brokerage Fee. Pit brokerage fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Position Limit. The maximum number of futures contracts for a given
commodity that can be held or controlled at one time by one person or a group
of persons acting together. Such limitation is imposed by the CFTC or an
exchange.
Pyramiding. A method of using all or part of an unrealized profit in a
commodity contract position to provide margin for any additional commodity
contract of the same or related commodities.
Redemption Net Asset Value per Unit. See the "Transfers and
Redemptions" section in Part One.
Round-turn. The opening and closing of a futures or option position
consisting of one contract.
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Settlement Price. The closing price for futures contracts in a
particular commodity, financial instrument or stock index established by the
clearing house or exchange after the close of each day's trading.
Sponsor. Any person directly or indirectly instrumental in organizing
a program or any person who will manage or participate in the management of a
program, including a futures commission merchant who pays any portion of the
organizational expenses of the program, and the general partner(s) and any
other person who regularly performs or selects the persons who perform services
for the program. Sponsor does not include wholly independent third parties such
as attorneys, accountants and underwriters whose only compensation is for
professional services rendered in connection with the offering of the units.
The term "sponsor" shall be deemed to include its affiliates.
Stock Price Index. A tool for measuring, with a single numerical
value, the current price level of the stocks of a composite of selected
publicly-traded companies, which tend to reflect the price level of all stocks
in the market from which the constituent corporations were selected. For
example, the S&P 500 Stock Price Index is a capitalization-weighted index
comprising 500 of the largest and most actively traded domestic industrial
stocks; the market value of the 500 constituent companies is equal to
approximately 80% of the value of all stocks traded on the New York Stock
Exchange. Other indices include the New York Stock Exchange Composite Index,
the Major Market Index, the Kansas City Value Line Index and the CRB Index.
Stock Index Futures or Index Futures or Stock Index Futures Contracts
or Index Futures Contracts. A contract made on or through a commodity exchange
which provides for the future cash settlement of the contract in an amount
equal to a multiple of the stock price index upon which the particular futures
contract is based. For example, futures contracts based on the S&P 500 Stock
Price Index, which currently represent three-quarters of all domestic stock
index futures trading, are settled quarterly, in cash, with no delivery of
securities and without transferring the full value of the contract, by charging
final gains and losses to the margin accounts of holders based on the opening
value of the S&P 500 Stock Price Index on the settlement date. The major stock
index futures are based on the S&P 500 Index (traded on the Chicago Mercantile
Exchange), the New York Stock Exchange Composite Index (traded on the New York
Futures Exchange), the Major Market Index (traded on the Chicago Board of
Trade) and the Kansas City Value Line Index (traded on the Kansas City Board of
Trade).
Stock Index Futures Options or Index Futures Options or Futures
Options. A contract giving the purchaser the right, but not the obligation, to
acquire ("call") or to dispose ("put") of the Stock Index Futures contract
underlying the option, or the Seller of a Stock Index Futures Option contract
the obligation to deliver (in the case of a "call" Seller) or take delivery (in
the case of a "put" Seller) of the futures contract underlying the option.
However, exercise of a Stock Futures Option on the settlement day of the
underlying futures contract results in cash settlement. On all other days,
exercise of a call results in a long futures position at the strike price in
the underlying contract month, and exercise of a put results in a short futures
position at the strike price in the underlying contract month. Any short
position open at the end of a trading day is liable to the assignment of a
futures position.
Trading Advisor. Any person who for any consideration engages in the
business of advising others, either directly or indirectly, as to the value,
purchase or sale of commodity contracts or commodity options.
Unrealized Profit or Loss. The profit or loss which would be realized
on an open position if it were closed out at the current settlement price.
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EXHIBIT "A"
AGREEMENT OF LIMITED PARTNERSHIP
OF
CERES FUND, L.P.
<PAGE> 96
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS .......................................... 1
ARTICLE II
FORMATION, NAME AND PRINCIPAL PLACE OF BUSINESS
2.01 Formation ......................................................... 5
2.02 Name .............................................................. 5
2.03 Principal Office .................................................. 5
2.04 Address of Limited Partners ....................................... 5
2.05 Registered Agent and Registered Office ............................ 5
ARTICLE III
PURPOSE OF PARTNERSHIP
3.01 Purpose ........................................................... 5
3.02 Powers ............................................................ 5
3.03 Limitations ....................................................... 5
ARTICLE IV
TERM OF PARTNERSHIP ...................................... 6
ARTICLE V
CAPITAL CONTRIBUTIONS
5.01 Limited Partners .................................................. 6
5.02 General Partner .................................................. 7
5.03 Interest On Contributions ......................................... 7
5.04 Capital Accounts .................................................. 7
5.05 Sale of Units ..................................................... 7
5.06 Manner of Sale .................................................... 8
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES AND DISTRIBUTIONS
6.01 Monthly Allocations-Profit or Loss ................................. 8
6.02 Distributions ..................................................... 13
ARTICLE VII
STATUS OF LIMITED PARTNERS
7.01 Liability ......................................................... 13
7.02 Defaults .......................................................... 14
7.03 Management ........................................................ 14
7.04 Withdrawals ....................................................... 14
7.05 Limitation on Right to Indemnification ............................ 14
7.06 Additional Information ............................................ 14
ARTICLE VIII
STATUS OF GENERAL PARTNER
8.01 Responsibility .................................................... 14
8.02 Rights and Powers ................................................. 15
8.03 Limitations ...................................................... 15
8.04 Time Devoted to Business .......................................... 16
</TABLE>
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<TABLE>
<S> <C>
8.05 Scope of Liability and Indemnity .................................. 16
8.06 Compensation and Reimbursement .................................... 17
8.07 Tax Matters Partner ............................................... 18
8.08 Managing General Partner .......................................... 18
ARTICLE IX
COVENANTS OF GENERAL PARTNER
9.01 Tax Classification ................................................ 19
9.02 Records, Books of Accounts and Reports to Limited Partners ........ 19
9.03 Bank Accounts and Other Assets .................................... 19
9.04 Tax Returns .......................................... ............ 19
9.05 Brokerage Fees .................................................... 19
9.06 Incentive Fees and Other Compensation ............................. 19
ARTICLE X
TRANSFER AND REDEMPTION OF UNITS
10.01 General Prohibition on Transfer .................................. 20
10.02 Redemption ....................................................... 21
10.03 Designation of Substituted Limited Partners ...................... 22
10.04 Effect of Assignment ............................................. 22
10.05 Death, Incapacity or Bankruptcy of Limited Partner ............... 22
ARTICLE XI
POWER OF ATTORNEY
11.01 Designation ...................................................... 23
11.02 Special Provisions ............................................... 23
ARTICLE XII
CESSATION OF GENERAL PARTNER
12.01 Cessation .................................................... 24
12.02 Transfer .................................................... 24
12.03 Withdrawal .................................................... 24
12.04 Removal .................................................... 24
12.05 Partnership Continues ......................................... 25
12.06 Election of New General Partners .............................. 25
12.07 Surrender of Interest ......................................... 25
ARTICLE XIII
DISSOLUTION AND TERMINATION
13.01 Dissolution of Partnership .................................... 25
13.02 Termination ................................................... 26
13.03 Distribution Upon Dissolution ................................. 26
13.04 Possibility of Economic Loss .................................. 27
ARTICLE XIV
AMENDMENTS
14.01 Permitted Amendments ......................................... 27
14.02 Prohibited Amendments ......................................... 28
ARTICLE XV
CONTRACTS WITH AFFILIATED PERSONS
15.01 General ....................................................... 28
15.02 Limitation on Affiliated Person ............................... 29
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XVI
MEETINGS OF AND ACTION BY LIMITED PARTNERS
16.01 Notice of Meetings ............................................ 29
16.02 Quorum, Adjournment ........................................... 29
16.03 Proxy, Telephone Attendance ................................... 29
16.04 Voting ........................................................ 29
16.05 Written Consent ............................................... 29
ARTICLE XVII
OUTSIDE ACTIVITIES .................................... 30
ARTICLE XVIII
MISCELLANEOUS
18.01 Addresses and Notices ......................................... 30
18.02 Captions ...................................................... 30
18.03 Entire Agreement .............................................. 30
18.04 Tax Elections ................................................. 30
18.05 Governing Law ................................................. 30
18.06 Binding Effect ................................................ 30
18.07 Identification ................................................ 30
18.08 Severability .................................................. 30
18.09 Counterparts .................................................. 31
Schedule A - List of Limited Partners
Schedule B - Form of Redemption Request
</TABLE>
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AGREEMENT OF LIMITED PARTNERSHIP
OF
CERES FUND, L.P.
THIS AGREEMENT made and entered into as of the 19th day of September, 1990
by and among RANDELTA CAPITAL PARTNERS, L.P., a Tennessee limited partnership
(the "Financial General Partner"), RANDELL COMMODITY CORPORATION, a Tennessee
corporation (the "Managing General Partner", and collectively with the
Financial General Partner, the "General Partner"), and the person(s) executing
this Agreement as limited partner(s) (collectively the "Limited Partner(s)") of
CERES FUND, L.P. (the "Partnership").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to form a limited partnership under the
Act (as defined below), and
WHEREAS, the parties hereto desire to provide for the governance of the
limited partnership and to set forth in detail their respective rights and
duties relating to the limited partnership;
NOW, THEREFORE, in consideration of the mutual promises made herein, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 As used herein, the following terms shall have the meaning ascribed
thereto below:
"Act" shall mean the Tennessee Revised Uniform Limited Partnership Act
(pursuant to Tennessee Code Annotated Section 61-2-101 et seq. or as amended
from time to time).
"Adjusted Asset Value" shall mean, except as set forth below, the total
assets of the Partnership less its liabilities, determined in accordance with
generally accepted accounting principles, including any unrealized profits and
any unrealized losses on its open futures and options positions. More
specifically, the Adjusted Asset Value of the Partnership shall equal the sum
of all cash, United States Treasury bills and other securities (valued at cost
plus accrued interest), the liquidating value (or cost of liquidation, as the
case may be) of all futures and options positions and the fair market value of
all other assets of the Partnership, less all liabilities of the Partnership
(including accrued liabilities irrespective of whether such liabilities may, in
fact, never be paid), in each case as determined by the General Partner in
accordance with generally accepted accounting principles, except as described
herein; provided, however, that Adjusted Asset Value shall not include (i) a
reduction for the Management Allocation for the month of determination, (ii) a
reduction for the Incentive Allocation for the quarter of determination, and
(iii) any unamortized organizational and offering expenses and related
liabilities of the Partnership. The liquidating value of a futures contract or
option traded on a United States exchange shall be based upon the settlement
price on the exchange on which the particular futures contract or option is
traded by the Partnership; provided that if a contract could not be liquidated
on the day with respect to which Adjusted Asset Value is being determined, due
to the operation of daily limits or other rules of the exchange upon which that
contract is traded or otherwise, the settlement price on the first subsequent
day on which the contract could be liquidated shall be the basis for
determining the liquidating value of such contract for such day, or such other
value as the General Partner may deem fair and reasonable. The liquidating
value of a futures or option contract not traded on a United States exchange
shall mean its liquidating value as determined by the General Partner on a
basis consistently applied for each different variety of contract. In
calculating unrealized profit or loss on an open futures position, the
commission, if any, which would be incurred in liquidating the open position
shall not be taken into account, nor shall any accrued brokerage fees.
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"Adjusted Capital Account Deficit" shall mean, with respect to any Limited
Partner, the deficit balance, if any, in such Limited Partner's Capital Account
as of the end of the relevant fiscal year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account for any amounts which
such Limited Partner is obligated to restore pursuant to the provisions of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulation Sections 1.704-1T(b)(4)(iv)(f) and
1.704-1T(b)(4)(iv)(h)(5); and
(ii) Debit to such Capital Account for the items
described in Sections 1.704-1(b)(2)(ii)(b)(4), (5) and (6) of the
Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
"Affiliated Persons" shall mean any person performing services on behalf
of the Partnership who (i) directly or indirectly controls, is controlled by,
or is under common control with the General Partner; or (ii) owns or controls
10% or more of the outstanding voting securities of the General Partner; or
(iii) is an officer or director of the General Partner; or (iv) if the General
Partner is an officer, director, partner or trustee, is any company for which
the General Partner acts in any such capacity.
"Agreement" shall mean this Agreement of Limited Partnership, as amended,
modified, supplemented or restated from time to time.
"Average Net Asset Value per Unit" shall mean, with respect to Units
purchased during the Continuous Offering, the result determined on the last day
of the month preceding the entry of the Limited Partner to the Partnership by
dividing (A) the difference between (i) the result determined under Section
6.01(a)(2)(A), and (ii) the sum of (a) the aggregate of the Management
Allocation chargeable to all Units during such preceding month, and (b) if such
month is the ending month of a calendar quarter, the aggregate Incentive
Allocation, if any, chargeable to all Units as of the end of such quarter, by
(B) the number of Units outstanding at the end of such preceding month.
"Capital Account" shall mean the accounts established pursuant to Section
5.04 hereof.
"Capital Gain" or "Capital Loss" shall mean gain or loss characterized as
gain or loss from the sale or exchange of a capital asset, as determined under
the Code, including gain or loss required to be taken into account pursuant to
Section 1256 of the Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended (or any
corresponding provisions of succeeding law).
"Commodity Broker" shall mean Refco, Inc., and its successors or the party
or parties then acting in such capacity.
"CFTC" shall mean the Commodity Futures Trading Commission.
"Continuous Offering" shall mean the period following the Initial Closing
Date during which the Partnership will offer Units for sale as of the first
business day of each month at the then current Average Net Asset Value per
Unit, plus the 5% Sales Commission.
"Financial General Partner" shall mean RANDELTA CAPITAL PARTNERS, L.P.,
and its successors or the party or parties then acting in such capacity, as
provided in Section 8.08(b) hereof.
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"General Partner" shall mean RANDELTA CAPITAL PARTNERS, L.P., a Tennessee
limited partnership, and RANDELL COMMODITY CORPORATION, a Tennessee
corporation, and their successors or the party or parties then acting in such
capacity.
"Initial Closing Date" shall mean the date occurring at or prior to the
end of the Initial Offering Period when the General Partner has accepted
subscriptions for the purchase of at least 10,000 Units and terminated the
Initial Offering Period.
"Initial Offering Period" shall mean the period extending to May 31, 1991
(or 90 days thereafter, if extended in the discretion of the General Partner)
during which the General Partner must accept subscriptions for the purchase of
at least 10,000 Units.
"Incentive Allocation" shall mean the quarterly special allocation to the
General Partner under Section 6.01(b)(2) hereof, equal to 15% of Net New
Appreciation with respect to each Unit as of the end of the calendar quarter of
determination. The Incentive Allocation shall be calculated and credited to the
General Partner's Capital Account each quarter.
"Limited Partners" shall mean the parties who acquire Units and are
admitted to the Partnership as limited partners (except the "Original Limited
Partner", as such), and any party admitted as a substituted limited partner as
provided herein.
"Management Allocation" shall mean the monthly special allocation to the
General Partner under Section 6.01(b)(1) hereof equal to 1/3% (4% per annum) of
the Adjusted Asset Value of the Partnership attributable to Units owned by the
Limited Partners, as determined pursuant to Section 6.01(a)(2)(A), as of the
end of the calendar month of determination, calculated without reduction for
distributions and/or redemptions during such month. The Management Allocation
shall be calculated and credited to the General Partner's Capital Account each
month.
"Managing General Partner" shall mean RANDELL COMMODITY CORPORATION, and
its successors or the party or parties then acting in such capacity, as
provided in Section 8.08(a) hereof.
"Net Asset Value" shall mean Adjusted Asset Value reduced by the aggregate
Management Allocation chargeable to all Units for the month of determination,
and the aggregate Incentive Allocation chargeable to all Units for the quarter
of determination.
"Net Asset Value per Unit" shall mean, with respect to each Limited
Partner's respective Units, the figure determined pursuant to the calculation
set forth in Section 6.01(a)(2) hereof.
"Net New Appreciation" shall mean the excess, if any, of (A) the Adjusted
Asset Value with respect to such Unit, as determined in accordance with Section
6.01(a)(2)(C), reduced by the Management Fee allocable to such Unit under
Section 6.01(a)(2)(D) for the month of determination, over (B) the highest Net
Asset Value per Unit attained by such Unit as of the end of any prior quarter,
plus all distributions and/or redemptions during such quarter and all
distributions made during any prior quarter with respect to such Unit.
"Original Limited Partner" shall mean the person consenting to be the
initial Limited Partner of the Partnership for purposes of the formation of the
Partnership under Tennessee law.
"Partners" shall mean both the General Partner and the Limited Partners.
"Partnership" shall mean the limited partnership hereby formed.
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"Partnership Percentage Interest" shall mean, with respect to any Partner,
the ratio of his Capital Account as of any Valuation Date to the aggregate of
the Capital Accounts of all Partners as of such date.
"Principal Office" shall mean 889 Ridge Lake Boulevard, Suite 320,
Memphis, Tennessee 38120.
"Redemption Fee" shall mean the fee charged to Limited Partners who redeem
Units prior to a specified date, as provided in Section 10.02 hereof.
"Redemption Date" shall mean any date for redemption of Units as provided
in Section 10.02 hereof.
"Redemption Net Asset Value per Unit" shall mean, with respect to each
Limited Partner's respective Units, the figure determined pursuant to the
calculation set forth in Section 6.01(a)(2) hereof, except that in calculating
the Adjusted Asset Value of the Partnership under Section 6.01(a)(1) hereof,
unrealized profit or loss on an open futures position shall be determined by
also subtracting the commission, if any, which would be incurred in liquidating
the open futures position, as well as any accrued brokerage fees.
"Registered Agent" shall mean John W. McArtor.
"Registered Office" shall mean 889 Ridge Lake Boulevard, Suite 320,
Memphis, Tennessee 38120.
"Regulations" shall mean the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Sales Commission" shall mean (A) during the Initial Offering, $5 per Unit
payable to those Selling Agents who sell Units during the Initial Offering
Period, and (B) during the Continuous Offering, 5% of the Average Net Asset
Value per Unit, payable to Selling Agents until August 31, 1991, and thereafter
to the Managing General Partner to compensate it for bearing (or causing others
to bear) all expenses related to the Continuous Offering. The General Partner,
in its discretion, may (i) remit a portion of the Sales Commission it receives
during the Continuous Offering to those Selling Agents who participate in the
sale of Units during the Continuous Offering, or (ii) waive or reduce all or
any portion of the Sales Commission.
"Selling Agents" shall mean those members of the National Association of
Securities Dealers, Inc. as may participate in the sale of Units hereunder.
"Special Redemption Date" shall mean the date for special redemptions of
Units as provided in Section 10.02 hereof.
"Tax Basis Account" shall mean the accounts established pursuant to
Section 6.01(b)(4) hereof.
"Unit" shall mean a unit of limited partnership interest in the
Partnership, there being a maximum of 100,000 such Units.
"Valuation Date" shall mean the last day of each month.
ARTICLE II
FORMATION, NAME AND PRINCIPAL PLACE OF BUSINESS
2.01 Formation. The Partners hereby form a limited partnership under the
Act to carry on the business purposes provided for herein.
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2.02 Name. The name of the Partnership shall be as set forth in the
initial paragraph hereof. The General Partner shall have the right and power
from time to time to use a trade or fictitious name or to change the name of
the Partnership, but shall give written notice of any change to all the Limited
Partners.
2.03 Principal Office. The Principal Office of the Partnership shall be
the address identified in Section 1.01 hereof. The Partnership may relocate
such office from time to time, or may have such additional offices, as the
General Partner may determine, but the General Partner shall give written
notice of any relocation to all the Limited Partners.
2.04 Address of Limited Partners. The address of a Limited Partner shall
be that stated after his name on the Subscription Agreement executed by him. A
Limited Partner may change his address by written notice to the Partnership,
which notice shall become effective upon receipt. The name, address, initial
capital contribution and number of Units purchased by each Limited Partner
shall be set forth in Schedule A hereto, as amended from time to time, which is
made a part hereof as fully as if set forth herein.
2.05 Registered Agent and Registered Office. The Registered Agent and
Registered Office required pursuant to the Act shall be as identified in
Section 1.01 hereof. The Partnership may change the Registered Agent or the
Registered Office from time to time, as the General Partner may determine, but
the General Partner shall give written notice of any change to all Limited
Partners.
ARTICLE III
PURPOSE OF PARTNERSHIP
3.01 Purpose. The Partnership's business and purpose is to trade, buy,
sell or otherwise acquire, hold or dispose of forward contracts, futures
contracts for commodities, financial instruments and currencies, any rights
pertaining thereto and any options thereon or on physical commodities, and to
engage in all activities necessary or incidental thereto. The Partnership may
also engage in "hedge", arbitrage and cash trading of commodities, futures and
options. The objective of the Partnership's business is the appreciation of its
assets through speculative trading.
3.02 Powers. Subject to the terms of this Agreement, the Partnership shall
be authorized to engage in any and all activities related or incidental to any
of its purposes.
3.03 Limitations. Notwithstanding anything herein to the contrary, the
Partnership shall not:
(a) Make any loans;
(b) Commingle funds of the Partnership with the funds of any
other person (provided, however, that deposit of funds with a commodity broker,
clearinghouse or forward dealer shall not be deemed to constitute "commingling"
for these purposes);
(c) Permit any person to receive, directly or indirectly, any
advisory, management or incentive fees or profit-sharing allocation from the
Partnership for investment advice or management who shares or participates in
any commodity brokerage commissions paid by the Partnership;
(d) Permit any rebates or give-ups to be received, directly or
indirectly, from the Partnership by any of the General Partner, any trading
advisor, the Commodity Broker or any of their Affiliated Persons, including any
reciprocal business arrangements which may circumvent such prohibitions;
(e) Enter into an exclusive (as opposed to nonexclusive) customer
agreement with any Commodity Broker;
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(f) Enter into any agreement covering a period in excess of one
year;
(g) Employing the trading technique commonly known as
"pyramiding", in which a speculator uses unrealized profits on existing
positions as margin for the purchase or sale of additional positions in the
same futures contract;
(h) Permit any sponsor to directly or indirectly pay or award any
commissions or other compensation to any person engaged to sell Units or give
investment advice to a potential participant; provided, however, that this
clause shall not prohibit the payment to a registered broker/dealer or other
properly licensed person of normal sales commissions for selling Units; and
(i) Permit an Affiliate of any trading advisor or manager of the
Partnership to share or participate, directly or indirectly, in any commodity
brokerage commissions paid by the Partnership.
ARTICLE IV
TERM OF PARTNERSHIP
The Partnership shall commence on the filing of a Limited Partnership
Certificate in the appropriate public office and shall continue until December
31, 2020 unless sooner terminated by operation of law, or as otherwise provided
herein.
ARTICLE V
CAPITAL CONTRIBUTIONS
5.01 Limited Partners.
(a) The Limited Partners shall contribute capital to the
Partnership by purchasing up to 100,000 Units. The Partnership may issue whole
or fractional Units in the discretion of the General Partner. During the
Initial Offering Period, a Limited Partner shall contribute $105 (including the
Sales Commission) to the Partnership for each Unit purchased. Limited Partners
purchasing Units during the Continuous Offering shall contribute to the
Partnership for each Unit purchased an amount equal to the Average Net Asset
Value per Unit as of the close of business on the last day of the month
preceding the effective date of such purchase, plus the 5% Sales Commission
(provided that the General Partner shall have discretion to waive or reduce all
or any portion of the Sales Commission).
(b) Payment for Units shall be made in the form of a lump-sum
cash payment upon submission of an executed subscription agreement. For Units
purchased during the Continuous Offering, such payment must be received by the
Partnership not later than the fifth day prior to the end of the calendar month
in order for a subscriber to be admitted on the first business day of the next
calendar month.
(c) The Original Limited Partner shall contribute $100 to the
capital of the Partnership upon formation hereof. Following the admission of
the investor Limited Partners, the Original Limited Partner shall withdraw from
the Partnership and his previous capital contribution of $100 shall be returned
to him. The Original Limited Partner shall have no interest in profits or other
compensation by way of income by reason of his contribution.
5.02 General Partner. As of the close of the Initial Offering Period, the
General Partner shall immediately contribute to the capital of the Partnership,
as a general partner's interest, the lesser of (i) $100,000, or (ii) an amount
not less than that which is necessary to cause the General Partner's Capital
Account to equal three percent (3%) of the
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total positive Capital Account balances of all Partners (taking the interests
of the Managing General Partner and the Financial General Partner on an
aggregate basis). So long as it is a General Partner of the Partnership, the
General Partner shall maintain a minimum investment of not less than that
amount necessary to cause the General Partner's Capital Account to equal one
percent (1%) of the total positive Capital Account balances of all Partners
(again taking the interests of the Managing General Partner and the Financial
General Partner on an aggregate basis). The General Partner shall make any
additional capital contributions necessitated by the purchase of Units during
the Continuous Offering as soon as practicable, but in no event later than the
fifteenth day of the month following the effective date of the purchase of such
Units. The General Partner may contribute any greater amount to the Partnership
as it in its sole discretion shall determine. The General Partner may withdraw
any interest it may have as General Partner in excess of such required minimum
investment. At all times during the term of the Partnership, the General
Partner shall maintain an interest of at least one percent (1%) in each
material item of Partnership income, gain, loss, deduction or credit. The
General Partner or any officer or affiliate thereof may acquire Units, and to
the extent that a General Partner purchases or becomes a transferee of any
Units, the General Partner shall, as to the other Partners, be treated in all
respects as a Limited Partner with respect to such Units.
5.03 Interest On Contributions. No Partner shall be entitled to interest
on any capital contributions.
5.04 Capital Accounts.
(a) A Capital Account shall be established on the books of the
Partnership for each Partner. Notwithstanding anything to the contrary
contained in this Agreement, the Capital Account of each Partner shall be
determined and maintained throughout the full term of the Partnership in
accordance with the capital accounting rules of Regulation Section
1.704-1(b)(2)(iv). In general, each Partner's Capital Account shall be credited
with the amount of each Partner's contributions to the Partnership as and when
made and with that Partner's share, determined as provided herein, of
Partnership income, gains, and profits; each Partner's Capital Account shall be
debited with his share, determined as provided herein, of Partnership losses
and with the amount of all distributions made by the Partnership to that
Partner.
(b) Upon the transfer by any Partner of any part or all of his
interest in the Partnership, the proportionate amount of his respective Capital
Account, determined as provided herein, shall be transferred to the transferee
of such interest; provided, however, that no transfer of any Units of interest
in the Partnership shall, in and of itself and to the extent permitted by law,
relieve the transferor of any obligation to the Partnership, including, but not
limited to, any such transferor's obligation to contribute to the capital of
the Partnership.
(c) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Regulation Section 1.704-1(b), and shall be interpreted and applied
in a manner consistent with such Regulation. In the event the General Partner
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto, are computed in order to comply
with such Regulation, the General Partner may make such modification, provided
that it is not likely to have a material effect on the amounts distributable to
any Partner pursuant to Section 14.03 hereof upon the dissolution of the
Partnership.
5.05 Sale of Units. The General Partner is hereby authorized to raise
capital for the Partnership by purchasing for itself or by offering and selling
up to 100,000 Units and by admitting the purchasers of same as Limited
Partners. No sale of Units shall be consummated unless the Partnership has
received and accepted subscriptions for the purchase of at least 10,000 Units
prior to the close of the Initial Offering Period (including extensions). The
proceeds of the subscriptions shall be deposited into the Partnership's
interest bearing general bank account at National Bank of Commerce, Memphis,
Tennessee, and held therein unless and until the Partnership has received and
accepted subscriptions for at least 10,000 Units prior to the close of the
Initial Offering Period (including extensions). At such time as the aforesaid
conditions shall have been satisfied, the General Partner shall declare the
Initial Closing Date, and the subscription proceeds shall be deposited into the
Partnership's commodity trading account at the Commodity Broker
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and used by the General Partner for such other proper Partnership purposes as
the General Partner shall determine. If for any reason whatsoever, the
Partnership has not satisfied the aforesaid conditions prior to the close of
the Initial Offering Period (including extensions), the General Partner shall
terminate the offering and all moneys theretofore paid in for Units shall be
refunded in full to the subscribers within 10 days, unless a subscriber wishing
to purchase Units confirms his willingness to subscribe and agrees in writing
to a further extension. Interest earned, if any, on such subscriptions during
the Initial Offering Period shall be paid pro rata to each subscriber at the
close of the Initial Offering Period, taking into account both the time and
amount of the subscription. The General Partner may reject any subscription in
whole or in part for any reason. All subscriptions are otherwise irrevocable by
the subscriber, except as required by applicable state law.
5.06 Manner of Sale. Subject to the provisions of Sections 5.01, 5.05 and
this Section 5.06, the General Partner shall have sole and complete discretion
in determining the terms and conditions of the offering and sale of Units,
including the sale of Units during the Continuous Offering; provided, however,
that the net proceeds to the Partnership of any such sales during the
Continuous Offering Period shall be no less than the Average Net Asset Value
per Unit then in effect, plus the 5% Sales Commission (unless the Sales
Commission is waived or reduced in the discretion of the General Partner), and
that the Partnership shall not pay any costs or expenses related to either its
organization, the Initial Offering Period or the Continuous Offering. Subject
to the provisions of this Section 5.06, if the initial 100,000 Units provided
for in this Agreement are sold, the General Partner shall have sole and
complete discretion to amend the Agreement to provide for a maximum of 400,000
additional Units for sale in the Continuous Offering. It is understood that the
offering shall be made in a manner which is subject to the registration
requirements of the Securities Act of 1933, as amended, and the General Partner
is authorized and directed to do all things it deems necessary, convenient,
appropriate or advisable in connection therewith, including but not limited to
the preparation and filing on behalf of the Partnership of any required
documents with the Securities and Exchange Commission and the securities
commissioners (or similar agencies or officers) of such jurisdictions as the
General Partner shall determine, and the execution or performance of agreements
with underwriters or others concerning the marketing of Units on such basis and
upon such terms as the General Partner shall determine. The General Partner,
and not the Partnership, shall bear, or cause others to bear, all expenses
related to the Continuous Offering, and as compensation the General Partner
shall receive all or a portion of the Sales Commission with respect to Units
sold during the Continuous Offering. No Limited Partner shall have any
preemptive, preferential or other rights with respect to the issuance or sale
of any additional Units. A purchaser of the Units acknowledges by such purchase
that the offering price of the Units during the Initial Offering Period has
been determined arbitrarily by the General Partner and not by negotiations at
arm's length.
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES AND DISTRIBUTIONS
6.01 Monthly Allocations-Profit or Loss.
(a) Monthly Allocations. As of the close of business (as
determined by the General Partner) on the last day of each calendar month
during each fiscal year of the Partnership, the following determinations and
allocations shall be made:
(1) The Adjusted Asset Value of the Partnership shall be
determined.
(2) Each Limited Partner's respective Net Asset Value per Unit
shall be calculated in the following manner:
(A) Step 1 - the aggregate Adjusted Asset Value allocable
to Units owned by Limited Partners is determined by
multiplying (i) the aggregate Adjusted Asset Value of
the Partnership as of the end of the month of
determination, by (ii) the ratio of (a) the aggregate
Net Asset Value of all Units owned by Limited
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Partners at the beginning of the month of
determination, to (b) the Net Asset Value of the
Partnership at the beginning of the month of
determination.
(B) Step 2 - the Adjusted Asset Value allocable to Units
owned by each respective Limited Partner is determined
by multiplying the result determined in Section
6.01(a)(2)(A) above by the ratio of (i) the aggregate
Net Asset Value of the individual Limited Partner's
respective Units at the beginning of the month of
determination, to (ii) the aggregate Net Asset Value
of all Units owned by Limited Partners at the
beginning of the month of determination.
(C) Step 3 - the Adjusted Asset Value allocable to each
Unit owned by a Limited Partner is determined by
dividing the result in Section 6.01(a)(2)(B) above by
the number of Units owned by the respective Limited
Partner.
(D) Step 4 - the Management Allocation allocable to the
General Partner shall be calculated and allocated
against and among the Units owned by all Limited
Partners in proportion to their respective Adjusted
Asset Value as determined pursuant to Section
6.01(a)(2)(B)(C) above.
(E) Step 5 - if such month is the ending month of a
calendar quarter, the Incentive Allocation (if any)
allocable to the General Partner shall be calculated
and allocated against those Units owned by Limited
Partners which have achieved Net New Appreciation for
the quarter of determination.
(F) Step 6 - the Net Asset Value per Unit for each Unit
owned by a respective Limited Partner is determined by
subtracting the Management Allocation and the
Incentive Allocation allocable to each such Unit from
the result determined under Section 6.01(a)(2)(C)
above. (G) In the event a Limited Partner acquires
Units on different dates, for the purposes of this
Article VI, such Limited Partner shall be treated as a
separate Limited Partner with respect to the Units
acquired on each such date.
(3) The Net Asset Value of the General Partner's interest in
the Partnership shall be determined by subtracting the
aggregate Net Asset Value allocable to the Units owned by
the Limited Partners from the Net Asset Value of the
Partnership.
(4) The Average Net Asset Value per Unit shall be determined.
(b) Federal Income Tax Allocations. Except as otherwise provided
herein, as of the end of each fiscal year, the Partnership's income and expense
and Capital Gain or Capital Loss shall be allocated among the Partners pursuant
to the following subparagraphs for federal income tax purposes. Allocations of
short-term Capital Gain or Loss and long-term Capital Gain or Loss (to the
extent the federal income tax law distinguishes between long-and short-term
Capital Gain or Loss) shall be pro rata.
(1) The burden of the Management Allocation allocable to
the General Partner shall be allocated against each
Limited Partner's respective Units in accordance with
Section 6.01(a)(2)(D) hereof.
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(2) The burden of the Incentive Allocation (if any)
allocable to the General Partner shall be allocated
against those Units which have experienced Net New
Appreciation for the quarter of determination in
accordance with Section 6.01(a)(2)(E) hereof.
(3) Items of ordinary income and expense (excluding the
Management Allocation and the Incentive Allocation),
such as interest income and brokerage fees, shall be
allocated pro rata among the Partners based on their
respective Partnership Percentage Interests as of the
beginning of each month in which the items of ordinary
income and expense accrue.
(4) Capital Gain or Capital Loss shall be allocated as
follows:
(A) There shall be established a Tax Basis Account
with respect to each outstanding Unit. The
initial balance of each Tax Basis Account shall
be the amount paid to the Partnership for each
Unit, respectively (and the amount of the
General Partner's contribution as described in
subparagraph (b)(6) below). As of the end of
each fiscal year:
(i) Each Tax Basis Account shall be
increased by the amount of income
allocated to each Partner pursuant to
subparagraph (b)(3) above and
subclauses (B), (C) and (D) below.
(ii) Each Tax Basis Account shall be
decreased by the amount of expense or
loss allocated to each Partner pursuant
to subparagraph (b)(1), (2) and (3)
above and subclauses (B), (E) and (F)
below and by the amount of any
distribution received by each Partner
with respect to the Unit or interest
other than upon redemptions.
(iii) When a Unit is redeemed, the Tax Basis
Account attributable to such Unit (or
redeemed portion of such Unit) shall be
eliminated.
(B) Except as otherwise provided in this Section
6.01(b) (4), Capital Gain and Capital Loss
realized during any calendar month shall be
allocated to those Partners who were Partners
during such month (including Partners who
redeem Units as of the last day of such month).
(C) Notwithstanding subparagraph (B) hereof, each
Partner who redeems a Unit on any Redemption
Date shall be allocated Capital Gain, if any,
realized on or prior to such Partner's
Redemption Date, in excess of the Capital Loss
allocable to such Partner under subparagraph
(B) hereof, up to the amount of the excess if
any, of the amount received upon redemption of
the redeemed Unit over the Tax Basis Account
maintained for such Unit (an "Excess") In the
event the aggregate amount of Capital Gain
available to be allocated pursuant to this
subparagraph (C) is less than the aggregate
amount of Capital Gain required to be so
allocated, (i) the aggregate amount of
available Capital Gain shall be allocated among
all such Partners and (ii) each Partner who has
not been allocated the full amount of such
Partner's Excess, pursuant to the first
sentence of this subparagraph (C) and clause
(i) of this sentence, shall be allocated, after
any allocations required by the first sentence
of this subparagraph (C) in respect of Partners
who redeem on subsequent Redemption Dates,
Capital Gain realized after such Partner's
Redemption Date
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up to the amount of such Partner's Excess which
has not otherwise been allocated.
(D) Notwithstanding subparagraph (B) hereof,
Capital Gain remaining after the allocations in
subparagraph (C) shall be allocated among all
Partners whose Capital Accounts are in excess
of their Tax Basis Accounts, after the
adjustments in subparagraph (C), in the ratio
that each such Partner's Excess (as defined in
subparagraph (C) hereof) bears to the aggregate
Excess of all such Partners.
(E) Notwithstanding subparagraph (B) hereof, each
Partner who redeems a Unit on any Redemption
Date shall be allocated Capital Loss, if any,
realized on or prior to such Partner's
Redemption Date, in excess of the Capital Gain
allocable to such Partner under subparagraph
(B) hereof, up to the amount of the excess, if
any, of the Tax Basis Account maintained for
the redeemed Unit over the amount received upon
redemption of such Unit (a "Negative Excess").
In the event the aggregate amount of Capital
Loss available to be allocated pursuant to this
subparagraph (E) is less than the aggregate
amount of Capital Loss required to be so
allocated, (i) the aggregate amount of Capital
Loss shall be allocated among all such Partners
in the ratio which each such Partner's Negative
Excess bears to the aggregate Negative Excess
of all such Partners, and (ii) each Partner who
has not previously been allocated the full
amount of such Partner's Negative Excess,
pursuant to the first sentence of this
subparagraph (E) and clause (i) of this
sentence, shall be allocated, after any
allocations required by the first sentence of
this subparagraph (E) in respect of Partners
who redeem on subsequent Redemption Dates,
Capital Loss realized after such Partner's
Redemption Date up to the amount of such
Partner's Negative Excess which has not
previously been allocated.
(F) Capital Loss remaining after the allocation in
subparagraph (E) shall be allocated among all
Partners whose Tax Basis Accounts are in excess
of their Capital Accounts after the adjustments
in subparagraph (E) in the ratio that each such
Partner's Negative Excess (as defined in
subparagraph (E) hereof) bears to the aggregate
Negative Excess of all such Partners.
(5) The allocation of income, gain, expense and loss for
federal income tax purposes set forth herein is
intended to allocate taxable income, gain, expense and
loss among the Partners generally in the ratio and to
the extent that income, gain, expense and loss are
allocated to such Partners so as to eliminate, to the
extent possible, any disparity between a Partner's
Capital Account and his Tax Basis Account, consistent
with principles set forth in Section 704(c) of the
Code.
(6) For purposes of this Section 6.01(b), tax allocations
shall be made to the General Partner's general
partnership interest on a Unit-equivalent basis, and
shall be split between the Managing General Partner
and the Financial General Partner as they shall
mutually determine.
(7) The allocations of income, gain, expense and loss to
the Partners in respect of the Units shall not exceed
the allocations permitted under Subchapter K of the
Code, as determined by the General Partner, whose
determination shall be binding.
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(c) Notwithstanding the foregoing:
(1) In the event any Partner unexpectedly receives
any adjustments, allocations or distributions
described in Section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6) of the Regulations, items of
Partnership income and gain shall be specially
allocated to each such Partner in an amount and
manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted
Capital Account Deficit of such Partner as
quickly as possible.
(2) In the event any Partner has a deficit Capital
Account at the end of any Partnership fiscal year
which is in excess of the sum of (1) the amount
such Partner is obligated to restore pursuant to
any provision of this Agreement, and (2) the
amount such Partner is deemed to be obligated to
restore pursuant to the penultimate sentences of
Regulation Sections 1.704-1(b)(4)(iv)(f) and
1.704-1(b)(4)(iv)(h)(5), each such Partner shall
be specially allocated items of Partnership
income and gain in the amount of such excess as
quickly as possible.
(3) To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Code
sections 734(b) or 743(b) is required, pursuant
to Regulation Section 1.704-1(b)(2)(iv)(m), to
be taken into account in determining Capital
Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases
such basis) and such gain or loss shall be
specially allocated to the Partners in a manner
consistent with the manner in which their
Capital Accounts are required to be adjusted
pursuant to such Section of the Regulations.
(4) The allocations set forth in Sections 6.01(c)(1)
through (3) hereof (the "Regulatory
Allocations") are intended to comply with
certain requirements of Regulation Section
1.704-1(b). Notwithstanding any other provision
of this Section 6.01 (other than the Regulatory
Allocations), the Regulatory Allocations shall
be taken into account in allocating other items
of income, gain, loss and expense among the
Partners so that, to the extent possible, the
net amount of such allocations of other items of
income, gain, loss and expense and the
Regulatory Allocations to each Partner shall be
equal to the net amount that would have been
allocated to each such Partner if the Regulatory
Allocations had not occurred.
(d) In the event of a transfer of any interest in the
Partnership, and/or in the event of any increase or decrease in the interest of
any Partner in the Partnership, whether arising out of or in connection with
the entry of a new Partner, the liquidation or redemption, partial or whole, of
any Partner's interest or otherwise, after the admission of any Limited
Partner, the share of the Profits, Losses and gains or losses from the
disposition of partnership assets, and each item of income and expense
pertaining thereto, of the respective Partners shall be fixed and determined by
reference to the income and expenses reflected on the books and records of the
Partnership according to the following convention: Partners shall be deemed
admitted to the Partnership as of the first business day of the first month
subsequent to the effective date of such purchase or transfer (as provided
herein), and Partners who are redeemed or liquidated shall be deemed a
withdrawn Partner as of the end of the calendar quarter after the General
Partner has received at least 15 days prior written notice of redemption;
provided, however, that if this convention is not permitted under applicable
Regulations, a convention permitted under Regulations approximating the
foregoing as closely as possible will be used.
(e) The allocations hereunder are intended to have substantial
economic effect and/or be in accordance with the Partners' interests in the
Partnership as such terms are defined in Section 704(b) of the Code and the
Regulations promulgated thereunder.
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6.02 Distributions.
(a) The General Partner shall have sole discretion in
determining what distributions (other than on redemption of Units pursuant to
Section 10.02 hereof), if any, the Partnership will make to its Partners. All
distributions other than with respect to the Management Allocation and the
Incentive Allocation shall be pro rata in accordance with the respective
Partnership Percentage Interests of the Partners. The General Partner may
withdraw funds (including funds attributable to the Management and Incentive
Allocations) at the end of any month so long as such distribution does not
reduce the General Partner's Capital Account below the minimum balance required
by Section 5.02 hereof. All distributions to the General Partner shall be split
between the Managing General Partner and the Financial General Partner as they
shall mutually determine.
(b) Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any
withholding requirements established under the Code or any other federal, state
or local law including, without limitation, pursuant to Sections 1441, 1442,
1445 and 1446 of the Code. To the extent that the Partnership is required to
withhold and pay over to any taxing authority any amount resulting from the
allocation or distribution of income to the Partner or assignee (including by
reason of Section 1446 of the Code), the amount withheld shall be treated as a
distribution of cash in the amount of such withholding to such Partner.
(c) It is intended that all distributions made to Partners
hereunder shall properly take into account the relative balances of their
Capital Accounts. Thus, the foregoing shall be modified, if, as, and to the
extent necessary to assure that distributions made do properly take into
account such relative Capital Accounts.
ARTICLE VII
STATUS OF LIMITED PARTNERS
7.01 Liability.
(a) Each Limited Partnership Unit when purchased and paid for
in full by a Limited Partner shall be fully paid and non-assessable, and no
Limited Partner shall be obligated to provide any contribution to the capital
other than as specified in Section 5.01 hereof. A Limited Partner shall not be
bound by, nor be personally liable for, the expenses, liabilities, or
obligations of the Partnership except to the extent provided for in subsection
(b) immediately following and Section 5.01 hereof, and where a Limited Partner
participates in the control of the business of the Partnership (as such phrase
is used under the Act).
(b) The capital contribution of a Limited Partner and his
share of distributed and undistributed profits, proceeds, or funds of the
Partnership shall be subject to the risks of the Partnership and subject to the
claims of its creditors.
7.02 Defaults. All Units subscribed for upon transfer of funds from a
subscriber's account (or receipt of a check) in the subscription amount are
issued subject to the collection of the funds represented by such transfer (or
check). In the event that a transfer (or check) of a subscriber is not honored,
the Partnership shall cancel the Units issued to such subscriber in
consideration of such dishonored transfer (or check); provided that the General
Partner may waive such cancellation upon receipt of what it believes to be
reasonable assurances that such transfer (or check) will be honored or replaced
by another transfer (or check) which will be honored within 10 business days of
original dishonor. Any losses or profits sustained by the Partnership in
connection with the Partnership's trading allocable to canceled Units shall be
deemed an increase or decrease in Adjusted Asset Value and allocated as
described in Section 6.01. Each subscriber agrees to reimburse the Partnership
for any expense or losses incurred in connection with any such cancellation of
Units issued to him.
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7.03 Management. A Limited Partner, as such, shall not participate in the
control of the business (as such phrase is used under the Act) of the
Partnership, or the conduct thereof, and shall have no right or authority to
act for or bind the Partnership in any manner whatsoever.
7.04 Withdrawals. No Limited Partner shall have the right to withdraw
(but the Original Limited Partner shall withdraw as such, and shall be entitled
to, a return of his capital contribution, if any, following admission of the
investor Limited Partners to the Partnership) or reduce his contribution to the
capital of the Partnership except with respect to redemption of Units under
Section 10.02 hereof, or as a result of the dissolution of the Partnership, or
as otherwise provided by and in accordance with law. No Limited Partner shall
have the right to demand or receive property other than cash in return for his
contribution, and no Limited Partner, as such, shall have priority over any
other Limited Partner, either as to the return of contributions of capital or
as to profits, losses or distributions. Notwithstanding the foregoing, no part
of the capital contribution of any Limited Partner shall be withdrawn unless
all liabilities of the Partnership (except liabilities to Partners on account
of their capital contributions) have been paid or unless the Partnership has
assets sufficient to pay the same.
7.05 Limitation on Right to Indemnification. A Limited Partner shall have
no right of, or right to apply for, indemnification pursuant to the terms of
this Agreement or otherwise, except where a right of indemnification or right
to apply for indemnification is otherwise expressly and unconditionally
provided under the Act without regard to the terms of the Agreement.
7.06 Additional Information. Each Limited Partner hereby undertakes to
furnish to the General Partner such additional information as may be deemed by
the General Partner to be required or appropriate to open and maintain an
account or accounts with commodity brokerage firms for the purpose of trading
in futures contracts and options thereon or to comply with federal or state
laws or regulations.
ARTICLE VIII
STATUS OF GENERAL PARTNER
8.01 Responsibility. The General Partner shall have exclusive management
and control of the business of the Partnership, and make all decisions
regarding the management and affairs of the Partnership. However, the General
Partner may delegate its power of decision (but not responsibility) in whole or
in part to any person, whether or not such person is a Partner. The General
Partner shall be under a fiduciary duty to conduct the affairs of the
Partnership in the best interests of the Limited Partners. The Limited Partners
shall under no circumstance be deemed to have contracted away the fiduciary
obligations owed to them by the General Partner under common law.
8.02 Rights and Powers. Subject to the limitations herein, the General
Partner shall have the right, power and authority to do on behalf of the
Partnership all things which, in its sole judgment, are necessary, proper or
desirable to carry out the provisions of this Agreement in a manner consistent
with the objectives of the Partnership or under law, including:
(a) to select and limit individual subscriptions for Units;
(b) to execute this Limited Partnership Agreement;
(c) to open bank accounts;
(d) to engage in the speculative trading of the Partnership's
assets;
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(e) to engage such persons, firms or entities, including
(except as set forth in Article XV) the General Partner, the Commodity Broker
and any Affiliated Person, as the General Partner in its sole judgement shall
deem advisable for the conduct and operation of the business of the
Partnership, and to determine the compensation of such persons, firms, or
entities, including an agreement to share profits and losses from the
Partnership's trading operations; provided, that no such compensation
arrangements shall allow any Commodity Broker, trading advisor or manager to
receive any brokerage fees, or incentive or management compensation from the
Partnership which circumvents the provisions of this Agreement or which is in
excess of the amount described in the prospectus utilized in connection with
the offering of the Units;
(f) to make or refrain from making, in its sole discretion,
the election contemplated by Section 754 of the Code on behalf of the
Partnership, and to determine how to classify items of income, gain, expense or
profit for federal or state income tax purposes on the Partnership tax returns
and the Form K-1s (or any successor form) transmitted to the Limited Partners;
(g) to execute a customer agreement between the Partnership
and the Commodity Broker;
(h) to execute selling agreements related to the sale of Units
and to take all such actions necessary or convenient with respect thereto;
(i) to agree to indemnify trading advisors and managers,
commodity and forward brokers and others providing services on behalf of the
Partnership;
(j) to pay or authorize the payment of, distributions to the
Partners and expenses of the Partnership, such as brokerage commissions, legal
and accounting fees, and registration and other fees of governmental agencies;
and
(k) to invest or direct the investment of funds of the
Partnership not being utilized as cash margin deposits.
8.03 Limitations. Notwithstanding any other provision herein, the General
Partner shall not:
(a) take any action which shall have a materially adverse
effect upon the Partnership;
(b) commingle assets of the Partnership with assets of any
other entity; provided, however, the deposit of assets with a commodity broker,
clearinghouse or forward merchant or entering into joint ventures or
partnerships shall not constitute commingling for these purposes;
(c) fail to conform to the Partnership's trading policies as
set forth in the prospectus utilized in connection with the sale of Units, or
as subsequently amended thereafter;
(d) receive any rebates or give-ups or participate in any
reciprocal business arrangements which would circumvent the provisions of the
Guidelines for the Registration of Commodity Pool Programs promulgated by the
North American Securities Administrators Association, Inc., or Article XV; and
(e) cause the Partnership to fail the "qualifying income"
tests of Sections 7704 (c) and (d) of the Code.
8.04 Time Devoted to Business. The General Partner shall devote such time
to the Partnership business as it, in its sole discretion, shall deem to be
necessary to supervise the Partnership business and affairs in an efficient
manner.
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8.05 Scope of Liability and Indemnity.
(a) Standard of Liability for the General Partner. The General
Partner and its Affiliated Persons shall have no liability to the Partnership
or to any Partner for any loss suffered by the Partnership which arises out of
any action or inaction by the General Partner or its Affiliated Persons if the
General Partner, in good faith, determined that such course of conduct was in
the best interest of the Partnership and such course of conduct did not
constitute negligence or misconduct of the General Partner or its Affiliated
Persons.
(b) Indemnification of the General Partner by the Partnership.
(1) The General Partner and its Affiliated Persons shall be
indemnified by the Partnership against any losses, judgments, liabilities,
expenses and amounts paid in settlement in any claims sustained by them in
connection with the Partnership; provided that such claims were not the result
of negligence or misconduct on the part of the General Partner or its
Affiliated Persons and has been determined in good faith by the General Partner
or its Affiliated Persons to be in the best interests of the Partnership; and
further provided that Affiliated Persons of the General Partner shall be
entitled to indemnification only for losses incurred by such Affiliated Persons
in performing the duties of the General Partner and acting wholly within the
scope of the authority of the General Partner. Notwithstanding the above, the
General Partner and its Affiliated Persons and any person acting as a Selling
Agent for the Units shall not be indemnified for any losses, liabilities or
expenses arising from or out of an alleged violation of federal or state
securities laws unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves indemnification of the litigation
costs, or (ii) such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular indemnitee and the court
approves indemnification of the litigation costs, or (iii) a court of competent
jurisdiction approves a settlement of the claims against a particular
indemnitee and finds that indemnification of the settlement and related costs
should be made.
(2) In any claim for indemnification for federal or state
securities law violations, the party seeking indemnification shall place before
the court the position of the Securities and Exchange Commission, the
Massachusetts Securities Division and the Pennsylvania Securities Commission
and any other applicable regulatory authority with respect to the issue of
indemnification for securities law violations.
(3) The Partnership shall not incur the cost of that portion
of any insurance which insures any party against any liability the
indemnification of which is herein prohibited.
(4) Advances from Partnership funds to a General Partner and
its Affiliated Persons for legal expenses and other costs incurred as a result
of any legal action initiated against the General Partner by a Limited Partner
are prohibited. Advances from Partnership funds to a General Partner and its
Affiliated Persons for legal expenses and other costs incurred as a result of
legal action will be made only if the following conditions are satisfied: (i)
the legal action relates to the performance of duties or services by the
General Partner or its Affiliated Persons on behalf of the Partnership; (ii)
the legal action is initiated by a third party who is not a Limited Partner;
and (iii) the General Partner or its Affiliated Persons undertake to repay the
advanced funds, with interest from the initial date of such advance, to the
Partnership in cases in which they would not be entitled to indemnification
under this Section 8.05(b).
(5) In no event shall any indemnity or exculpation provided
for herein be more favorable to the General Partner or any Affiliated Person
than that permitted pursuant to Regulation 950 CMR 13.305 of the Commonwealth
of Massachusetts or contemplated by the Guidelines for the Registration of
Commodity Pool Programs promulgated by the North American Securities
Administrators Association, Inc., in each case as in effect on the date of this
Agreement.
(6) In no event shall any indemnification permitted by this
Section 8.05(b) be made by the Partnership unless all provisions herein for the
payment of indemnification have been complied with in all respects.
Furthermore,
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it shall be a precondition of any such indemnification that the Partnership
receive a determination of independent legal counsel in a written opinion that
the party which seeks to be indemnified hereunder has met the applicable
standard of conduct set forth herein. Receipt of any such opinion shall not,
however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Partnership hereunder shall be made only as provided in the specific case.
(7) In no event shall indemnification obligations of the
Partnership under this Section 8.05(b) subject a Limited Partner to any
liability in excess of that contemplated by Section 7.01.
(c) Indemnification of the Partnership by the Partners. In the event
the Partnership is made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative or
otherwise incurs any loss or expense as a result of or in connection with any
Partner's activities, obligations or liabilities unrelated to the Partnership's
business, such Partner shall indemnify and reimburse the Partnership against
all losses, damages or expenses (including attorneys' fees, judgments, fines
and amounts paid in settlement) actually and reasonably incurred by the
Partnership in connection with such action, suit or proceeding.
8.06 Compensation and Reimbursement.
(a) Compensation. The General Partner shall be entitled to
receive as compensation:
(1) The Management Allocation and the Incentive
Allocation; and
(2) The Sales Commission with respect to Units sold
during the Continuous Offering;
(3) The Redemption Fees; and
(4) Reimbursement from the Commodity Broker for
organizational and offering expenses in
connection with the Initial Offering Period.
Except for the foregoing, and except for its interest in income, gains,
expenses, losses and cash distributions, the General Partner shall not be
entitled to any compensation for its services to the Partnership other than as
permitted by subparagraph (b) following and Section 15.01.
(b) Reimbursements. The General Partner shall be entitled to
reimburse itself out of Partnership assets or cause the Partnership to pay
directly for all reasonable costs, and expenses (including extraordinary
expenses) incurred by it directly to third parties on behalf of the Partnership
in connection with or by reason of doing those things which, in its sole
judgment, are necessary, proper, or desirable to carry out the provisions of
this Agreement, including postage and other expenses related to communications
with Limited Partners, reimbursements to the Tax Matters Partner pursuant to
Section 8.07(e) hereof, and the fees and disbursements of counsel, auditors or
other professionals employed by the General Partner and/or the Partnership
incurred in connection with or related to any of the foregoing. Reimbursement
for the above-mentioned expenses, except for those expenses relating to the
actual cost of legal and audit services and extraordinary expenses, shall not
exceed 2% of the Partnership's Average Net Asset Value, determined annually. If
necessary, the General Partner shall reimburse the Partnership, no less
frequently than quarterly, for the amount by which such aggregate fees and
expenses (excluding the actual cost of legal and audit services and
extraordinary expenses) paid by the Partnership exceed 1/6th of 1% of
Partnership Net Asset Value per month (not to exceed 2% annually). If
reimbursement is required or extraordinary expenses are incurred, the General
Partner shall include in the Partnership's next regular report to the Partners
a discussion of the circumstances or events which resulted in the reimbursement
or extraordinary expenses. However, none of the General Partner's "overhead"
expenses incurred in connection with the administration of the Partnership
(including, but not limited to, salaries, rent and travel expenses) shall be
charged to the Partnership.
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8.07 Tax Matters Partner.
(a) The General Partner shall be the "Tax Matters Partner",
hereinafter the "TMP", for all administrative and judicial proceedings for the
assessment and collection of tax deficiencies and for the refund of tax
overpayments arising out of a Partner's distributive share of items of income,
deduction, credit and/or of any other Partnership item allocated to the
Partners affecting any Partner's tax liability.
(b) The TMP shall promptly notify all Partners of any
administrative or judicial proceeding pending before the Service involving any
Partnership item and the progress of any such proceeding. Such notice shall be
in compliance with such regulations as are issued by the Treasury Department.
(c) The TMP shall have all the powers provided for in Sections
6223 through 6231 of the Code, including the specific power to extend the
statute of limitations with respect to any matter which is attributable to any
Partnership item or affecting any item pending before the Service, and to
select the forum to litigate any tax issue or liability arising from
Partnership items.
(d) The General Partner may resign his position as TMP by
giving thirty (30) days' written notice to all Partners. The General Partner
having the largest or next largest interest in the profits of the Partnership
at the close of the taxable year immediately preceding such resignation shall
become the successor TMP with all the rights and duties as provided for herein;
provided, however, should the General Partner transfer its interest as a
General Partner, such transferee or successor in interest shall become the TMP.
(e) The TMP shall be entitled to reimbursement for any and all
reasonable expenses incurred with respect to any administrative and/or judicial
proceedings affecting the Partnership.
8.08 Managing General Partner. RANDELL COMMODITY CORPORATION is hereby
designated as the Managing General Partner, and except as otherwise
specifically required under the terms of this Agreement, it is intended that in
such capacity as Managing General Partner, RANDELL COMMODITY CORPORATION shall
have primary responsibility for carrying out the duties and exercising the
powers and discretion herein granted to the General Partner. Any determination
made or act done by the Managing General Partner alone, and any agreement,
document or instrument made or executed for or in the name of Partnership by
the Managing General Partner, alone and without the joinder of any other
Partner, shall be as binding and as effective, and shall bind the applicable
entity as fully and completely, as if all General Partners had joined therein.
ARTICLE IX
COVENANTS OF GENERAL PARTNER
9.01 Tax Classification. The General Partner covenants and agrees that it
will use its best efforts to meet all future requirements set by Congress, any
agency of the federal government or the courts necessary to insure that the
Partnership will be classified as a partnership for federal income tax purposes
and not as an association taxable as a corporation.
9.02 Records, Books of Accounts and Reports to Limited Partners .
(a) True and complete records and books of account of the
business of the Partnership, in which shall be entered fully and accurately all
Partnership transactions, shall be kept at the Principal Office of the
Partnership. Such books, together with a certified copy of the Certificate of
Limited Partnership, this Agreement, and a list of the names and addresses of
all Partners and the number of Units owned, shall be open to inspection, and
copy and mailing (at his
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expense), by any then existing Partner or his representatives at any reasonable
time during business hours. Upon written request, the General Partner will mail
a list of the names and addresses of all the Limited Partners for the cost of
postage and duplication. The Partnership books and records shall be kept using
the calendar year in accordance with generally accepted accounting principles
consistently applied on the accrual basis. The Partnership shall maintain and
preserve for at least six years all books and records, and all records
necessary to determine Limited Partner suitability.
(b) The Partnership books will be audited annually by
independent certified public accounts. The Partnership will cause each Partner
to receive by March 15 of each succeeding year an annual report containing
audited financial statements of the Partnership for the fiscal year then ended
and such other information as the CFTC may from time to time require, and such
tax information as is necessary for Partners to complete their respective
federal income tax returns. The General Partner shall timely report or cause to
be reported to the Limited Partners or regulatory authority any such
information as required to comply with 17 C.F.R. ss.4.22, or as otherwise
required by the CFTC or other regulatory authority. The General Partner shall
compute Adjusted Asset Value on a daily basis, and shall furnish the respective
Net Asset Value per Unit to each Limited Partner upon request.
9.03 Bank Accounts and Other Assets. All funds of the Partnership not
invested shall be deposited in its name in such bank accounts or bank
certificates or instruments as the General Partner elects. Withdrawals
therefrom shall be made upon such signature or signatures as the General
Partner may designate. The General Partner shall have the fiduciary
responsibility for the safekeeping of all funds and assets of the Partnership,
whether or not in its immediate possession or control and shall not employ, or
permit another person or entity to employ, such funds or assets in any manner
except for the exclusive benefit of the Partnership.
9.04 Tax Returns. The General Partner shall cause income tax returns for
the Partnership to be prepared and filed with the appropriate authorities on a
timely basis.
9.05 Brokerage Fees. The General Partner will make an annual review of
the commodity brokerage arrangements applicable to the Partnership. The
Partnership's commission rates will be effected at competitive rates. Notice
shall be sent to each Limited Partner within seven business days from the date
of any material change related to the brokerage commissions paid by the
Partnership, and such notice shall include a description of any material effect
such changes may have on the interests of the Limited Partners, the Limited
Partners' voting rights, and their redemption rights pursuant to Section 10.02.
9.06 Incentive Fees and Other Compensation. The General Partner shall
notify each Limited Partner within seven business days from the date of any
material change in any contract with a trading advisor, including any change in
trading advisors, or any modification in connection with the method of
calculating any incentive fee. The General Partner also shall notify each
Limited Partner within seven business days from the date of any material change
in the compensation of any other party. Such notice shall include a description
of any material effect such changes may have on the interests of the Limited
Partners, the Limited Partners' voting rights, and their redemption rights
pursuant to Section 10.02.
ARTICLE X
TRANSFER AND REDEMPTION OF UNITS
10.01 General Prohibition on Transfer. Units may not be freely
transferred. No Partner shall have the right or power to assign, transfer,
encumber, or otherwise dispose of all or any of his Units except in accordance
with this Article X, and no other purported assignment, transfer, encumbrance
or other disposition shall be effective for any purpose.
Each transfer of a Unit shall require strict compliance with the following
requirements:
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(a) prior to the consummation thereof, all assignees and/or
transferees with respect thereto shall have delivered to the Partnership a
writing making all of the representations set out in the agreement governing
subscriptions for Units and shall have executed an appropriate power of
attorney;
(b) the Partnership is provided with an opinion of its
counsel, or of other counsel satisfactory to its counsel, whose opinion shall
be satisfactory in form and substance to the Partnership's counsel, stating
that such assignment, transfer, encumbrance or other disposition is exempt from
registration under the Securities Act of 1933 and is permissible under all
applicable federal and state securities laws without registration or
qualification of any security or any person; however, such opinion of counsel
will not be at the expense of the Assigning Limited Partner;
(c) such assignment, transfer, encumbrance or other
disposition would not (in the opinion of the Partnership's legal counsel)
result in the termination of the Partnership's status as a partnership for
purposes of the then applicable provisions of the Code;
(d) such assignment, transfer, encumbrance or other
disposition is to a person who is not a minor or incompetent, and consists of
all Units owned by the transferor; provided, however, except for transfers or
assignments by gift, inheritance, intrafamily transfers and assignments, family
dissolutions, and transfers and assignments to Affiliates, if fewer than all
Units are being transferred or assigned, no transfer or assignment will be
effective or recognized by the Partnership if the transferee or assignee, or
the transferor or assignor would, by reason of such transfer or assignment, own
fewer than the minimum number of Units required in an initial purchase, as
described in the Prospectus relating to the offering of the Units;
(e) the fully executed and acknowledged written instrument of
assignment (the terms of which must be consistent with the provisions of this
Agreement and satisfactory to the General Partner in form and substance) is
filed with the Partnership and sets forth the intention of the Partner making
such assignment (the "Assigning Partner") that the assignee become a
substituted Limited Partner in his place;
(f) the Certificate of Limited Partnership (if required under
the Act) and this Agreement are amended to reflect such assignment and
substitution;
(g) each Assigning Limited Partner and assignee shall execute
and acknowledge such instruments, in form and substance satisfactory to the
General Partner, as the General Partner shall reasonably deem necessary or
desirable to effectuate such admission and to confirm the agreement of the
assignee to be bound by all the terms and provisions of this Agreement with
respect to the Unit(s) acquired;
(h) all expenses, including attorneys' fees, incurred by the
Partnership in this connection, are paid by such substituted Limited Partner;
and
(i) the General Partner consents thereto in writing, which
consent may be withheld for any reason.
Any transfer of Units which is permitted hereunder shall be effective as of the
first day of the month succeeding the month in which the General Partner
receives at least 30 days prior written notice of such transfer.
10.02 Redemption.
(a) A Limited Partner (or any assignee thereof) may cause the
Partnership to redeem any or all of his Units at the end of any calendar
quarter on 10 days written notice to the General Partner; provided that a
Limited Partner shall not be entitled to redeem any Unit until after 6 full
months from the time such Unit was purchased. Units which have been redeemed
may not be resold by the Partnership. Except in the case of a redemption of all
Units owned by a Limited Partner, or in the discretion of the General Partner,
no redemptions may be made of fractions of Units. Redemptions shall be
effective as of the calendar end of the quarter (the "Redemption Date") during
which the General Partner has received 10 days prior written notice of
redemption in the form attached hereto as Exhibit B; provided that no
redemption shall be effective unless or until all liabilities, contingent or
otherwise, of the Partnership, except any
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liability to Partners on account of their capital contributions, have been paid
or there remains property of the Partnership sufficient to pay them. Upon
redemption, a Limited Partner (or any assignee thereof) shall receive, per Unit
redeemed, an amount equal the Redemption Net Asset Value per Unit thereof as of
the Redemption Date, less any amount owing by such Partner (and his assignee,
if any) to the Partnership. Units redeemed on or prior to the end of the 6th,
9th and 12th full calendar month after the purchase of such Units shall be
charged a 4%, 3%, and 2% redemption fee, respectively (the "Redemption Fee"),
not to exceed 5% of the gross purchase price (e.g., without reduction for the
Sales Commission) of such Units. These redemption charges shall be paid to the
Managing General Partner. If redemption is requested by an assignee, all
amounts owed to the Partnership by the Partner to whom such Unit was sold as
well as all amounts owed by all assignees of such Unit shall be deducted from
the Redemption Net Asset Value of such Unit upon redemption by any assignee. An
assignee shall not be entitled to redemption until the General Partner has
received written notice of the assignment, transfer or disposition under which
the assignee claims an interest in the Unit to be redeemed and shall have no
claim against the Partnership or the General Partner with respect to
distributions or amounts paid on redemption of Units prior to the receipt by
the General Partner of such notice. Payment will be made within 15 business
days after the Redemption Date, except that, under special circumstances,
including, but not limited to, the inability of the Partnership to liquidate
commodity positions as of such Redemption Date or default or delay in payments
due the Partnership from commodity brokers, banks or other persons, the
Partnership may delay payment to Partners requesting redemption of Units of the
proportionate part of the Redemption Net Asset Value of the Units represented
by the sums which are the subject of such default or delay.
(b) If at the close of business (as determined by the General
Partner) on any day, the Average Net Asset Value per Unit has decreased to 50%
or less of the highest Average Net Asset Value per Unit at which Units have
been purchased, after adjusting downward for all distributions, the Partnership
will liquidate all open positions as expeditiously as possible and suspend
trading. Within 7 business days after such decline, the General Partner shall
declare a Special Redemption Date, and mail notice of such date to each Limited
Partner and assignee of Units of whom it has received written notice as
described above (of the assignment, transfer or disposition under which the
assignee claims an interest in the Units to be redeemed), together with
instructions as to the procedure such Limited Partner or assignee must follow
to have his interest (only entire, not partial interests may be so redeemed
unless otherwise determined by the General Partner) in the Partnership redeemed
on such date. Such Special Redemption Date, if declared, shall be a business
day within 30 business days from the date of such decline. Upon redemption
pursuant to a Special Redemption Date, a Partner or any other assignee of whom
the General Partner has received written notice as described above, shall
receive from the Partnership an amount equal to the Redemption Net Asset Value
per Unit of his interest in the Partnership, determined as of the close of
business (as determined by the General Partner) on such Special Redemption
Date. After such Special Redemption Date, the Partnership may resume trading.
If the General Partner declares a Special Redemption Date, and the Partnership
thereafter resumes trading, subsequent Special Redemption Dates shall occur if
the Average Net Asset Value per Unit has decreased to 50% or less of the
highest Average Net Asset Value per Unit at which Units have been purchased
since the previous Special Redemption Date (or the Average Net Asset Value Per
Unit at such previous Special Redemption Date, if higher), after adjusting
downward for all distributions. The General Partner may at any time and in its
discretion declare a Special Redemption Date should the General Partner
determine that it is in the best interests of the Partnership to do so. The
General Partner may also, in its discretion, declare additional regular
redemption dates for Units and permit Limited Partners to redeem at other than
quarter-ends.
(c) The General Partner may, in its sole discretion, redeem
any Units if it considers doing so to be desirable for the protection of the
Partnership or its Partners. Any such redemption may be effected upon ten days
notice as to part (from time to time) or all of any Limited Partner's or
assignee's interest in the Partnership. If any redemption under this Section
10.02(c) is effected at other than the end of a calendar month or quarter, the
Redemption Net Asset Value per Unit shall not be reduced for any Management or
Incentive Allocation that would have been allocable to such Units as if the
redemption was effected at the end of a month or quarter.
10.03 Designation of Substituted Limited Partners. Upon compliance with
all of the conditions set forth in Section 10.01 hereof, the General Partner
will appoint an assignee or transferee (whether such assignee or transferee has
acquired his interest by virtue of a voluntary assignment, an involuntary
transfer or a transfer by operation of law) of the Unit(s) of an assigning
Partner to be and become a substituted Limited Partner in the Partnership
entitled to all the rights and benefits of the Assigning Partner under this
Agreement.
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10.04 Effect of Assignment.
(a) In the event a vote of the Limited Partners shall be taken
pursuant to this Agreement for any reason, an assignee will not be entitled to
vote with respect to any Unit(s) assigned to him in respect of which the
assignee has not become a substituted Limited Partner.
(b) To the extent specified in the assignment, an assignee of
any Unit(s), subject to Section 6.01(d), will be entitled to receive and/or be
credited with his share, from and after the effective date of such written
assignment, of income, gains, expenses, losses and cash distributions allocable
or distributable in respect to the Unit(s) assigned.
10.05 Death, Incapacity or Bankruptcy of Limited Partner. The death,
legal incapacity or bankruptcy of a Limited Partner shall not cause a
dissolution of the Partnership, but the rights of such Limited Partner to
receive and/or be credited with his share of Profits, Losses and cash
distributions allocable or distributable in respect of his Unit(s) and his
right to assign Units shall, on the happening of such an event, devolve on his
authorized representative, or in the event of the death of one whose Units are
held in joint tenancy, pass to the surviving joint tenant(s), subject to the
terms and conditions of this Agreement, and the Partnership shall continue as a
limited partnership. However, in no event (except upon compliance with Section
10.01) shall such authorized representative thereby become a substituted
Limited Partner.
ARTICLE XI
POWER OF ATTORNEY
11.01 Designation. The Limited Partners, jointly and severally, hereby
irrevocably constitute and appoint each General Partner, and their respective
duly authorized officers and general partners, severally, as their true and
lawful attorney-in-fact, in their name, place and stead to make, execute, sign,
acknowledge, record and file, on behalf of them and on behalf of the
Partnership, the following:
(a) A Certificate of Limited Partnership, a Certificate of
Doing Business Under an Assumed Name, and any other certificates or instruments
which may be required to be filed by the Partnership or any of the Partners
under the laws of the State of Tennessee and any other jurisdiction the laws of
which may be applicable;
(b) A Certificate of Cancellation of the Partnership and such
other instruments as may be deemed necessary or desirable by the General
Partner upon the termination of the Partnership;
(c) Subject to the other provisions of this Agreement,
amendments to this Agreement;
(d) Any and all amendments of the instruments described in
subparagraphs (a), (b) and (c) above, provided such amendments are either
required by law to be filed, or are consistent with this Agreement (including,
without limitation, any amendments admitting or substituting holders of Units
as Limited Partners), or have been authorized by the particular Limited Partner
or Limited Partners; and
(e) Customer agreements (including amendments thereto) with
any Commodity Broker;
(f) Selling agreements (including amendments thereto) with
Selling Agents;
(g) Advisory or management contracts (including amendments
thereto) with trading advisors and managers for the Partnership; and
(h) Subject to the other provisions of this Agreement,
documents necessary to file, prosecute, defend, settle or compromise
litigation, claims or arbitrations on behalf of the Partnership.
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11.02 Special Provisions. The foregoing grant of authority:
(a) Shall survive the delivery of an assignment by a Limited
Partner of the whole or any portion of his Units for the purpose of enabling
the General Partner to execute, acknowledge and file an amended Limited
Partnership Certificate;
(b) Is a special power of attorney coupled with an interest,
is irrevocable and shall survive the death or incapacity of the Limited Partner
granting the power;
(c) May be exercised by any General Partner or any successor
General Partner on behalf of each Limited Partner by a facsimile signature or
by listing all of the Limited Partners executing any instrument with a single
signature as attorney-in-fact for all of them; and
(d) Shall in no way cause a Limited Partner to be liable in
any manner for the acts or omissions of the General Partner or any successor
General Partner and is granted only to permit any General Partner or his
representatives to carry out the provisions of this Agreement.
ARTICLE XII
CESSATION OF GENERAL PARTNER
12.01 Cessation. A person shall cease to be a General Partner upon the
transfer of its entire interest in the Partnership pursuant to Section 12.02
hereof, upon its withdrawal in accordance with Section 12.03 hereof, upon its
removal pursuant to Section 12.04 hereof, upon its death, incapacity or
bankruptcy, or upon the occurrence of any other event specified in the Act.
Except as provided in Section 12.03 (relating to withdrawal), Section 12.04
(relating to removal) and Section 12.07 (relating to bankruptcy), upon the
occurrence of any of the foregoing events, such person or its transferee shall
have the right to receive distributions and allocations with respect to its
Partnership interest, shall be treated as the transferee of a Limited Partner,
and shall have the right to become a Substituted Limited Partner with the
consent of the remaining General Partners (if there is no remaining General
Partner, then with the consent of any General Partners elected pursuant to
Section 12.06 hereof).
12.02 Transfer. The interest of a General Partner, as such, in the
Partnership shall not be transferable to any other person except upon consent
of a simple majority in interest of all Limited Partners. Such interest may be
pledged, hypothecated or otherwise encumbered, subject to the provisions
hereof.
12.03 Withdrawal. Any General Partner may withdraw from the Partnership
without thereby incurring any liability to the Partnership or to any Partner,
upon giving 120 days prior notice to the Partnership and other Partners, so
long as:
(a) if after such withdrawal there would remain at least one
General Partner, and such withdrawal would not in the opinion of the
Partnership's legal counsel result in the Partnership's ceasing to be treated
as a partnership for purposes of the then applicable provisions of the Code; or
(b) if after such withdrawal there would be no remaining
General Partner, and
(i) within 90 days of such notice all of the Limited
Partners shall have elected in writing (A) to continue the Partnership, and (B)
another person or entity to succeed such withdrawing General Partner (or
Partners) pursuant to Section 12.06 (hereinafter "Successor General Partner"),
and this Agreement and the Certificate of Limited Partnership are properly
amended to reflect this result; and
(ii) such withdrawal would not in the opinion of the
Partnership's legal counsel result in the Partnership's ceasing to be treated
as a partnership for purposes of the then applicable provisions of the Code.
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In the event of withdrawal of a General Partner, the withdrawn General Partner
shall be entitled to a redemption of its general partnership interest at its
Unit-equivalent basis (computed pursuant to Section 6.01(b)), and payment of
all amounts due under Section 8.06, as of the end of the calendar quarter
following such withdrawal. Any withdrawn General Partner must pay all expenses
incurred by the Partnership as a result of its withdrawal.
12.04 Removal.
(a) General. A simple majority in interest of all Limited
Partners may elect to remove any General Partner if:
(i) There is no remaining General Partner, a Successor
General Partner is elected within ninety days thereafter pursuant to Section
12.06, and this Agreement and the Certificate of Limited Partnership are
properly amended to effect this result; and
(ii) The removed General Partner shall be entitled to a
redemption of its general partnership interest at its Unit-equivalent basis
(computed pursuant to Section 6.01(b)), and payment of all amounts due under
Section 8.06, as of the end of the calendar quarter following such removal; and
(iii) Such removal would not (in the opinion of the
Partnership's legal counsel) result in the Partnership's ceasing to be treated
as a partnership for purposes of the then applicable provision of the Code; and
(iv) The Successor General Partner assumes the removed
General Partner's obligations to the Partnership for claims arising prior to
removal and agrees to indemnify the removed General Partner for such claims in
a form satisfactory to the removed General Partner.
(b) Termination of Interest. If a General Partner is removed
on the basis of fraud (as determined by a court of competent jurisdiction) his
interest in the Partnership as a General Partner shall terminate and he shall
not be entitled to any compensation therefor from the Partnership, any of the
Partners, or from any other person or entity.
(c) Subsequent Events. No removed General Partner shall be
liable to the remaining Partners for causes of action or events occurring after
the termination of such General Partner's former status.
12.05 Partnership Continues. In the event any person ceases to be a
General Partner pursuant to Section 12.01 hereof (other than the last remaining
or sole General Partner), all Limited Partners hereby consent that any
remaining General Partners shall have the right and power to continue the
Partnership and its business without dissolution, any last remaining or sole
General Partner hereby agrees to continue the Partnership and its business
without dissolution for a reasonable time.
12.06 Election of New General Partners. In the event any person ceases to
be a General Partner pursuant to Section 12.01 hereof, and as a consequence
thereof the Partnership has no General Partner, the Partnership shall dissolve
unless within 90 days thereafter the Limited Partners shall elect a Successor
General Partner and agree in writing to continue the business of the
Partnership. The election of a new General Partner shall require (a) an
affirmative vote of a simple majority in interest of the Limited Partners (or
such greater percentage as may be required pursuant to the Act, as determined
by an opinion of counsel to the Partnership) if the former General Partner
ceased to be a General Partner by reason of removal under Section 12.04, or (b)
an affirmative vote of all of the Limited Partners, if the former General
Partner ceased to be a General Partner for any other reason.
12.07 Surrender of Interest. The interest of any bankrupt General
Partner shall be surrendered to the Partnership.
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ARTICLE XIII
DISSOLUTION AND TERMINATION
13.01 Dissolution of Partnership. The Partnership shall be dissolved
upon the happening of any of the following events:
(a) Expiration of its term;
(b) By vote of the Limited Partners holding Units representing a
simple majority in interest of the Units;
(c) The failure of any person or corporation to qualify as a
Successor General Partner within 90 days after the last remaining General
Partner ceases, for any reason, to be a General Partner;
(d) By any event which makes it unlawful for the business, as
conducted by the Partnership, to be continued;
(e) Upon disposition of all or substantially all of the
Partnership's assets and distribution of the proceeds; or
(f) Any other event which, under the laws of the State of
Tennessee, would cause its dissolution.
13.02 Termination. A reasonable time as determined by the General
Partner, not to exceed eighteen months, shall be allowed for the orderly
liquidation of the assets of the Partnership and the discharge of all
liabilities to the creditors so as to enable the General Partner to minimize
any losses attendant upon liquidation. Each of the Partners shall be furnished
with a statement prepared by the Partnership's certified public accountant,
which shall set forth the assets and liabilities of the Partnership as of the
date of complete liquidation and the manner in which the assets of the
Partnership are to be distributed. Upon the General Partner' complying with the
foregoing distribution plan, the Limited Partners shall cease to be such and
the General Partner shall execute, acknowledge, and cause to be filed, a
Certificate of Cancellation of the Partnership, provided, however, the Limited
Partners hereby agree to join in executing such document, if such joinder is
required or is requested by the General Partner.
13.03 Distribution Upon Dissolution. Upon dissolution and termination of
the Partnership, the General Partner (or in the event the dissolution is caused
by the cessation of the last remaining General Partner, such person as a
majority in interest of the Limited Partners shall designate as a liquidating
trustee) shall make or cause to be made a full accounting of the Partnership
assets and liabilities, and shall liquidate all open positions as expeditiously
as possible and the proceeds therefrom, to the extent sufficient therefor,
shall be applied and distributed in the following order:
(a) To the payment of creditors (including the General Partner to
the extent provided in Section 8.06 hereof), in the order of priority as
provided by law, except any claims of creditors whose obligations will be
assumed or otherwise transferred on the liquidation of the Partnership assets;
(b) To the setting up of any reserves which the General Partner
deem reasonably necessary for any contingencies or unforeseen liabilities or
obligations of the Partnership. Such reserves shall be paid over by the General
Partner to a bank or an attorney-at-law as escrow agent to be held for the
purpose of disbursing such reserves in payment of any of the aforementioned
contingencies. At the expiration of such period as the General Partner shall
deem advisable, the escrow agent shall distribute the balance thereof in the
manner and order as provided in this Section; and
(c) To the Partners in accordance with the positive balances of
their respective Capital Accounts, as adjusted pursuant to Section 5.04 hereof.
In the event the proceeds are less than the total of the Capital Accounts of
the Partners, said proceeds shall be distributed among the Partners based on
the ratio that each Partner's individual Capital Account (as adjusted) bears to
the total Capital Accounts of all Partners.
13.04 Possibility of Economic Loss. The Partners acknowledge and agree
that if the Partnership should be dissolved and wound up without the
Partnership realizing sufficient gain on the sale of its assets for the
Partners to recoup the prior losses allocated to them, the amount of such
losses will reduce the amount of distributions to which the Partners will be
entitled on the liquidation of the Partnership.
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ARTICLE XIV
AMENDMENTS
14.01 Permitted Amendments. This Agreement may be amended by the General
Partner, without any approval of the Limited Partners being required, in order
to:
(a) change the name or the principal place of business of the
Partnership;
(b) subject to Articles X and XII, substitute and admit a
Partner;
(c) change the name or residence of any Partner;
(d) add to the representations, duties or obligations of the
General Partner or surrender any right or power granted to the General Partner
herein, for the benefit of the Limited Partners;
(e) cure any ambiguity, or correct or supplement any provision
herein which may be inconsistent with any other provision herein;
(f) delete or add any provision of this Agreement required to
be so deleted or added by any state, federal, or national official in the
United States or in any other Country, which addition or deletion is deemed by
such official to be for the benefit or protection of the Limited Partners;
(g) delete or add any provision of or to this Agreement
required to be deleted or added by the Staff of the Securities Exchange
Commission or any other federal agency or any state "Blue Sky" official or
similar official or in order to opt to be governed by any amendment or
successor to the Act, or to comply with applicable law;
(h) comply with the provisions of the Act, as amended, and any
successor statute, as well as the laws of any other state or country;
(i) subject to the provisions of Section 5.06 hereof, increase
the number of Units to a maximum of 500,000; and
(j) amend, upon notice to all Limited Partners, the provisions
of Article VI and any other applicable provision of this Agreement to the
minimum extent necessary to take account any amendment to Sections 704 or 7704
of the Code or the Regulations thereunder or any judicial or administrative
interpretation thereof.
Except as otherwise provided herein, and except for amendments affecting the
liabilities, obligations, rights, powers, interests or compensation of General
Partner (which, except as provided in Section 14.01(d), shall be made only with
the consent of all Limited Partners), Limited Partners holding Units
representing a simple majority in interest may act to amend this Agreement
(including any amendment constituting a material change in the basic investment
policies or structure of the Partnership) in the manner set forth in Article
XVI to the extent permitted by Tennessee law.
14.02 Prohibited Amendments. Notwithstanding any provision herein to the
contrary, no amendment shall without the consent of all Partners:
(a) change the Partnership to a general partnership;
(b) change the term of the Partnership;
(c) change the liabilities, obligations, rights, powers,
interests or compensation of the General Partner (except as set forth in
Section 14.01(d) hereof) or the limited liability of the Limited Partners;
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(d) change the interest of any class of Partners;
(e) permit Limited Partners, as such, to share in the control
or management of the Partnership's business;
(f) change the provisions of Article X or Article XII hereof;
or
(g) change the provisions hereof in any manner which would
result in the Partnership ceasing to be treated as a partnership, or the
Partnership being taxable as a corporation, for purposes of the then applicable
provisions of the Code.
ARTICLE XV
CONTRACTS WITH AFFILIATED PERSONS
15.01 General. The Partnership may acquire property or services from, and
have other transactions with, persons or entities who are Partners or
Affiliated Persons, subject to the following conditions:
(a) Any transaction, other than routine clerical,
administrative, accounting, legal and miscellaneous services which are on the
whole not material in amount between the Partnership and Affiliated Persons is
prohibited. Any such routine clerical, administrative, accounting, legal and
miscellaneous services shall be provided at cost, limited to the extent of
ss.8.06(b), and fully disclosed in writing in advance to all Partners and shall
be on terms comparable and competitive with those which may be obtained from
unaffiliated persons. The Affiliated Persons must be engaged in the business of
rendering such services, independently of the Partnership as an ordinary and
ongoing business. Any such transaction must be pursuant to a written contract
which precisely describes the transaction, which does not cover a period in
excess of one year, and which may be canceled without penalty by a majority in
interest of the Limited Partners on 60 days' written notice, except for the
compensation and reimbursements payable to the General Partner pursuant to
Section 8.06 hereof. The General Partner and its Affiliated Persons shall be
prohibited from providing unspecified services to the Partnership without first
specifying such services in writing in advance in the manner set forth in this
Section 15.01(a).
(b) The Partnership shall make no loans to any Partner or
Affiliated Persons.
(c) No property shall be purchased, directly or indirectly,
from any General Partner or Affiliated Person.
(d) On any loans made to the Partnership by a General Partner,
the General Partner will not receive any interest or other financing charges or
fees in excess its interest costs or of the amounts which would be charged at
and during the time of the loan by unrelated lending institutions on comparable
loans for the same purpose in the same locality as such General Partner, and no
prepayment charges or penalties shall be imposed on the Partnership. No General
Partner will charge a finder's or placement fee for loans or other financing
secured for the Partnership from other sources.
15.02 Limitation on Affiliated Person. An Affiliated Person shall have no
right or authority to represent or bind the Partnership in connection with the
terms, interpretation, enforcement or any other matter related to any agreement
between the Partnership and such Affiliated Person. All rights and powers of
the Partnership with respect to such agreement shall be exercised on its behalf
solely by the General Partner.
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ARTICLE XVI
MEETINGS OF AND ACTION BY LIMITED PARTNERS
16.01 Notice of Meetings. Meetings of the Limited Partners to vote upon
such matters as Limited Partners are authorized to act herein may be called at
any time by the General Partner or by Limited Partners having more than 10 per
cent of the voting power of the Limited Partners by delivering written notice
of such call to the General Partner. Within 10 days after the call of a
meeting, the General Partner shall cause notice to be given to the Limited
Partners entitled to vote on such matters that a meeting will be held at a time
and place fixed by the General Partner which is not less than 30 nor more than
60 days after the call of the meeting. If the General Partner fails to give
such notice, then the Limited Partners calling the meeting may give notice of
the meeting and fix the time and place thereof. Meetings of Limited Partners
shall be held in Memphis, Tennessee, at the time and place designated by the
persons calling the meeting.
16.02 Quorum, Adjournment. Any Limited Partners' meeting, whether or not
a quorum is present, may be adjourned from time to time by the vote of Limited
Partners having a majority of the voting power of the Limited Partners
attending the meeting, but in the absence of a quorum no other business may be
transacted at such meeting.
16.03 Proxy, Telephone Attendance. There shall be deemed to be a quorum
at any meeting of the Limited Partners at which Limited Partners holding
Limited Partnership Units representing a majority in interest are present in
person, by telephone or by proxy. Any Limited Partner may attend the meeting in
person, by telephone or by proxy.
16.04 Voting. The voting power of a Limited Partner on any matter shall
be equal to the number of Units owned by him.
16.05 Written Consent. Any action which may be taken by vote may be taken
on written consent without a meeting of the Partnership being held or called
upon written consent of Limited Partners holding the same number of Units in
the Partnership as would have been required had such meeting been held. For
purposes of obtaining a written consent under this Agreement, the General
Partner may require a written response by a Limited Partner within a specified
time, but not less than 30 days after the date of such notice. In such event,
if the Limited Partner does not respond within the stated time period, the
Limited Partner shall be deemed to have abstained from the matter specified in
the written consent.
ARTICLE XVII
OUTSIDE ACTIVITIES
Any of the Partners (and any of the officers, directors, shareholders or
affiliates of any Partner which is a corporation and any partner of a Partner
which is a partnership), General or Limited, may engage in or possess any
interest in other business venture of any kind, independently or with others,
including but not limited to the ownership, financing, leasing, operating
management, syndication, brokerage or development of real property. The fact
that a Partner may encounter opportunities to purchase, otherwise acquire,
lease, sell or otherwise dispose of real or personal property and may take
advantage of such opportunities himself or introduce such opportunities to
entities in which he has or has not any interest, shall not subject such
Partner to liability to the Partnership or any of the other Partners on account
of the lost opportunity. Neither the Partnership nor any Partner shall have any
right by virtue of this Agreement or the Partnership relationship created
hereby in or to such ventures, or to the income or profits derived therefrom,
and the pursuit of such ventures, even though competitive with the business of
the Partnership, shall not be deemed wrongful or improper.
ARTICLE XVIII
MISCELLANEOUS
18.01 Addresses and Notices. The addresses for each Limited Partner for
all purposes shall be the address stated after his name on the subscription
agreement executed by him, or such other address of which the General Partner
has received written notice. Unless written notice is given to all Limited
Partners, the address of the General Partner shall
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be the same as that of the principal office of the Partnership set forth in
Section 2.03 hereof. Any notice, demand or request required or permitted to be
given or made hereunder shall be in writing and shall be deemed given or made
when delivered or sent by certified or registered mail, return receipt
requested, to each Partner at such address.
18.02 Captions. Section titles or captions contained in this Agreement
are inserted for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent
of any provision hereof.
18.03 Entire Agreement. This Agreement constitutes the entire agreement
among the parties; it supersedes any prior agreement or understandings among
them, and it may not be modified or amended in any manner other than pursuant
to Article XIV hereof.
18.04 Tax Elections. All elections required or permitted to be made by
the Partnership under applicable tax laws shall be made by the General Partner
in its sole discretion.
18.05 Governing Law. This Agreement and the rights of the parties
hereunder shall be governed by and interpreted in accordance with the laws
(excluding conflict of laws provisions) of the State of Tennessee.
18.06 Binding Effect. Except as herein otherwise provided, this Agreement
shall be binding upon and inure to the benefit of the parties, their legal
representatives, heirs, administrators, executors, successors and assigns.
18.07 Identification. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in either the masculine or the
neuter gender shall include the masculine, the feminine and the neuter.
18.08 Severability. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those to which it is held invalid, shall
not be affected thereby and shall continue to be binding and in force.
18.09 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. In addition, this Agreement may contain
more than one counterpart of the signature page, and this Agreement may be
executed by the affixing of the signature of each of the Partners to one of
such counterpart signature pages; all of such counterpart signature pages shall
be read as though one, and they shall have the same force and effect as though
all of the signers had signed a single signature page.
IN WITNESS WHEREOF, the Partners have executed this Agreement as of the
day and year first hereinabove set forth.
AS ORIGINAL LIMITED PARTNER: AS GENERAL PARTNER:
RANDELTA CAPITAL PARTNERS, L.P.,
General Partner
/s/ Marty Morgan By: DELTA INTERNATIONAL, INC.,
- ---------------------- General Partner
Marty Morgan
By: /s/ John W. McArtor
---------------------------
John W. McArtor.,
President
RANDELL COMMODITY CORPORATION,
General Partner
By: /s/ Frank L. Watson, Jr.
---------------------------
Frank L. Watson, Jr.,
Chairman
29
<PAGE> 128
SCHEDULE A
TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
CERES FUND, L.P.
<TABLE>
<CAPTION>
NAME AND ADDRESS INITIAL CAPITAL NO. OF
OF LIMITED PARTNERS CONTRIBUTION UNITS
- ------------------- ------------ -----
<S> <C> <C>
</TABLE>
<PAGE> 129
SCHEDULE "B"
TO LIMITED PARTNERSHIP AGREEMENT
CERES FUND, L.P.
REQUEST FOR REDEMPTION
_____________, 19__
-------------------
Account Number
Ceres Fund, L.P.
c/o RANDELTA CAPITAL PARTNERS, L.P.
889 Ridge Lake Boulevard, Suite 320
Memphis, Tennessee 38120
Dear Sirs:
I hereby request redemption, as defined in and subject to all of the terms
and conditions of the Limited Partnership Agreement of Ceres Fund, L.P. (the
"Partnership"), of _________________ (insert number of Units to be redeemed)*
of my Units of Limited Partnership Interest in the Partnership. Redemption
shall be effective as of the last day of the month ending at least 10 days
after receipt of this Request by the General Partner. I (either in my
individual capacity or as an authorized representative of an entity, if
applicable) hereby represent and warrant that I am the true, lawful and
beneficial owner of the Units of Limited Partnership Interest of the
Partnership to which this Request relates, with full power and authority to
request redemption of such Units. Such Units are not subject to any pledge or
otherwise encumbered in any fashion. My signature has been guaranteed by a
commercial bank or by a member of the National Association of Securities
Dealers, Inc., other than a sole proprietor.
- --------------------------------------------
Name
- --------------------------------------------
Street
- --------------------------------------------
City State Zip
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
- --------------------------------------------
- --------------------------------------------
Signature(s)
PARTNERSHIP, TRUST OR CORPORATE PARTNER
- --------------------------------------------
Name of Entity
By:_________________________________________
Partner, Trustee or authorized officer
Signature(s) guaranteed by:
- --------------------------------------------
THIS REQUEST MUST BE MAILED TO THE PARTNERSHIP'S OFFICE BY REGISTERED MAIL
<PAGE> 130
EXHIBIT "B"
CERES FUND, L.P.
REQUEST FOR REDEMPTION
_____________, 19__
-------------------
Account Number
Ceres Fund, L.P.
c/o RANDELTA CAPITAL PARTNERS, L.P.
889 Ridge Lake Boulevard, Suite 320
Memphis, Tennessee 38120
Dear Sirs:
I hereby request redemption, as defined in and subject to all of the terms
and conditions of the Limited Partnership Agreement of Ceres Fund, L.P. (the
"Partnership"), of _________________ (insert number of Units to be redeemed)*
of my Units of Limited Partnership Interest in the Partnership. Redemption
shall be effective as of the last day of the month ending at least 10 days
after receipt of this Request by the General Partner. I (either in my
individual capacity or as an authorized representative of an entity, if
applicable) hereby represent and warrant that I am the true, lawful and
beneficial owner of the Units of Limited Partnership Interest of the
Partnership to which this Request relates, with full power and authority to
request redemption of such Units. Such Units are not subject to any pledge or
otherwise encumbered in any fashion. My signature has been guaranteed by a
commercial bank or by a member of the National Association of Securities
Dealers, Inc., other than a sole proprietor.
- --------------------------------------------
Name
- --------------------------------------------
Street
- --------------------------------------------
City State Zip
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
- --------------------------------------------
- --------------------------------------------
Signature(s)
PARTNERSHIP, TRUST OR CORPORATE PARTNER
- --------------------------------------------
Name of Entity
By:_________________________________________
Partner, Trustee or authorized officer
Signature(s) guaranteed by:
- --------------------------------------------
THIS REQUEST MUST BE MAILED TO THE PARTNERSHIP'S OFFICE BY REGISTERED MAIL
<PAGE> 131
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
(1) Form of Selling Agreement Among the Partnership,Refco, Inc. and Selling
Agents is incorporated by reference to Exhibit (1) to the
Post-Effective Amendment No. 4 to the Registration Statement of the
Partnership dated June 30, 1994 (SEC File No. 33-37802.)
(2)(b) Agreement of Limited Partnership of the Partnership is incorporated by
reference to Exhibit (2)(b) to the Post-Effective Amendment No. 1 to
the Registration Statement of the Partnership dated April 26, 1991 (SEC
File No. 33-37802)
(5) Opinion of Waring Cox is incorporated by reference to Exhibit 5 to the
Post-Effective Amendment No. 1 to the Registration Statement of
the Partnership dated April 26, 1991 (SEC File No. 33-37802.)
(10)(a) Amendment No. 1 to the Management Agreement among the Partnership,
Randell Commodity Corporation and Delta International, Inc. is
incorporated by reference to Exhibit 10(a) to the Post-Effective
Amendment No. 4 to the Registration Statement of the Partnership dated
June 15, 1994 (SEC File No. 33-37802)
(23)(a) Consent of accountants for the Partnership.
(23)(c) See Exhibit 5.
(b) Financial Statement Schedules
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post Effective Amendment No. 10 of the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Memphis, State of Tennessee on November 11,
1999.
CERES FUND, L.P.
By: RANDELL COMMODITY CORPORATION,
Managing General Partner
By: /s/ Frank L. Watson, Jr.
-------------------------------------
Frank L. Watson, Jr.,
Chairman and Sole Director
<PAGE> 1
EX-23(a)
KPMG
Morgan Keegan Tower, Suite 900 Telephone 901 523 3131
Fifty North Front Street Fax 901 523 8877
Memphis, TN 38103
ACCOUNTANTS' CONSENT
We consent to the use herein of our report dated February 12, 1999, on the
statements of financial condition of Ceres Fund, L.P. (a Tennessee Limited
Partnership) as of December 31, 1998 and 1997, and summary of net asset values
as of December 31, 1998, 1997 and 1996, and the related statements of
operations, changes in partners' capital and cash flows for each of the years
in the three-year period ended December 31, 1998 and the reference to our Firm
under the heading "Experts" in the Prospectus.
KPMG LLP
Memphis, Tennessee
November 9, 1999
